Economic Inequality

  • April 11, 2017
    Guest Post

    *This piece is part of the ACSblog symposium: "The Future of the U.S. Constitution

    by Walter Dellinger, ACS Board of Advisors Member, Douglas B. Maggs Professor Emeritus of Law, Duke University School of Law and Dawn Johnsen, ACS Board of Advisors Member and Walter W. Foskett Professor of Law, Indiana University Maurer School of Law

    America’s increasing economic inequality threatens our liberal democracy. Economic inequality translates into political inequality and corrodes our democratic institutions and the viability of our Constitution. Ganesh Sitaraman describes these threats in his excellent new book, The Crisis of the Middle Class Constitution: Why Economic Inequality Threatens Our Republic. We need urgently to find innovative tools to counter the erosion of our foundational, shared belief in opportunity and fairness, the American Dream.

    It is time to begin a serious national debate about the wisdom and constitutionality of a federal tax on wealth – an annual tax of a small percentage of an individual taxpayer’s net worth in excess of some large minimum. Just for example:  a 1 percent annual tax on wealth in excess of 10 million dollars, which would affect less than 1 percent of Americans. We leave the details to those skilled in economic and tax policy. Nor do we have in mind the short-term political viability of such a tax in the current Congress – though we will note that in 1999 Donald Trump suggested a one-time 14.25 percent tax on net worth in excess of 10 million dollars.

  • April 11, 2017
    Guest Post

    *This piece is part of the ACSblog symposium: "The Future of the U.S. Constitution"

    by Kate Andrias, ACS Board of Academic Advisers Member and Assistant Professor of Law, University of Michigan Law School

    Ours is an economy and a political system from which many ordinary Americans feel excluded; they feel forgotten by those in power; and they worry that their opportunities are declining. Their perceptions are based in reality. Today, income inequality in the United States is at its highest level since the period leading up to the New Deal. The top 1 percent of earners in the United States take home nearly a quarter of our national income. Workers’ real wages have barely grown during recent decades, even as productivity and educational attainment have increased. The situation is most dire for people of color, particularly African Americans, but white men have also fallen behind, suffering mounting health problems and diminishing opportunities. Political inequality has soared as well. Numerous studies demonstrate the outsized influence of economic elites, both individuals and corporations, at every level of the legislative and administrative process. 

    Trump came to power in part because of these problems of economic and political inequality. His election, like others around the globe, reflected voters’—and nonvoters’—widespread dissatisfaction with political elites. Unfortunately, every indication is that the problems in the political economy that contributed to Trump’s victory will only grow worse under his watch.

    The inequality that helped produce Trump’s election represents a failure of American politics. It also represents a failure of U.S. constitutional law—or more precisely, judge-made constitutional doctrine. Constitutional doctrine contributes to, even facilitates, political and economic inequality in numerous ways. Campaign finance doctrine is the most notorious example. But paltry constitutional protections for workers’ rights to organize and strike are also to blame. Some scholars estimate that the decline in unionization in the United States is responsible for up to one-third of the climb in income inequality in recent decades. So too, the Supreme Court’s doctrine on poverty and education is at fault, having allowed, despite sound constitutional arguments to the contrary, a system of vast inequity in schooling to persist. Many other examples exist.  Here, too, things are likely to get worse under the Trump administration rather than better.

  • April 7, 2017
    Guest Post

    *This piece is part of the ACSblog symposium: "The Future of the U.S. Constitution

    by Jamal Greene, ACS Board of Academic Advisers Member and Dwight Professor of Law, Columbia Law School

    The election of Donald Trump as president represented a failure of American politics. No healthy political culture could have produced his presidency. What is less clear, and what I wish to address here, is whether Trump’s election also represented a failure of the U.S. Constitution. Do our constitutional arrangements predict just the kind of political failure that materialized in November 2016? If so, does that mean that the long-term remedy for that failure lies in constitutional reform? Does our constitutional fate, in other words, determine our political fate?

    Trump’s election has many causes, some of which are clearly contingent. It is easy to imagine Hillary Clinton winning an election held one week later, say, or two weeks earlier. And so the question that interests me arises from the possibility of Trump’s being elected rather than the fact of his election itself. The question does not, moreover, depend on Trump’s particular cocktail of policy interests (such as they are). Trump’s presidency is a crisis not because of his policy positions but because of his corruption, his infantile temperament, his dangerous self-obsession, his sexism and sympathy to white nationalism, his indifference to the truth and his fundamental indecency. A leftist version of Trump is imaginable and, in my view, equally frightening.

    The set of conditions that create the possibility of a Trump or Trump-like presidency are many and are contestable. The umbrella term I will place over at least a subset of those conditions is one I borrow from economics: disintermediation. Disintermediation is what it sounds like: cutting out the middle person, typically from a supply chain. Intermediaries such as distributors or brokers connect sellers to buyers. This is easy to see in a commercial market, and it is equally easy to see how technological change can reduce the need for intermediaries. Amazon is a low-cost means of connecting buyers to sellers. Trulia connects home buyers to sellers without the need for real estate brokers. But disintermediation also occurs in political and information markets, as the Internet and social media platforms diminish the need for traditional information brokers such as major media outlets.

  • February 28, 2017
    Guest Post

    by Jennifer Bird-Pollan, James and Mary Lassiter Associate Professor of Law, University of Kentucky College of Law

    Economic inequality can mean a variety of different things, and can be measured in a variety of ways. One might be concerned about absolute inequalities of income or wealth, where, for instance, some members of a society have high incomes, and others have low incomes, or no income at all.  One might also be concerned about inequality of opportunity, where, a society does not provide equal chances for all to achieve success, often because of factors outside of an individual’s control, such as that person’s race, gender, or geographic location. However you define or measure it, there is general consensus that economic inequality in the United States is at historically high levels. A variety of factors have contributed to the rise in inequality. Despite the all-American belief in the story of the self-made man and the value of pulling yourself up by your own boot straps, it has become clear over the past few decades that the American tax and transfer system does very little to facilitate upward economic ability in the United States.

    Using the federal government to address economic inequality requires two components: the government must raise tax revenue from those with wealth and/or income, and then use it to fund programs that support the lowest income members of society. Unfortunately, our government has been resistant to both of those steps in the past few decades. The highest marginal individual income tax rate was as high as 94 percent in the middle of the 20th Century, while in 2017 the highest marginal tax rate is 39.6 percent.  These numbers don’t tell the whole story, since when the highest rate was over 90 percent, it only applied on amounts earned over very high income thresholds (approximately $2.5 million in today’s dollars). By contrast, today’s top marginal rate applies to income over about $400,000. Nonetheless, there has been an overall reduction in the effects of the individual income tax on high-income earners. While the individual income tax is the largest source of revenue in our current tax system, other taxes administered by the federal government have been cut in recent years as well. The federal wealth transfer taxes, including the gift tax and the estate tax, applied to all transfers over $675,000 as recently as 2001. Under current law, individuals can transfer $5,450,000 ($11,900,000 for a married couple) to their heirs without paying a penny of wealth transfer tax. And while our corporate tax rate remains at least nominally relatively high (35 percent) when compared internationally, changes to the tax code that allow for nearly indefinite deferral of corporate tax obligations, as well as an evolution of the kinds of entities taxpayers use to do business significantly reduce the amount of revenue raised through the corporate tax system. In other words, nearly every means the government has to raise tax revenue from the high income and high wealth members of society has been scaled back, reducing the ability of the government to fund the kinds of programs that might fight economic inequality from the bottom up, by funding programs in education, childhood poverty fighting measures, or health programs, just to name a few.

  • February 22, 2017
    Guest Post

    by Maura Healey, Attorney General of Massachusetts*

    To pay for the hallmarks of a decent middle-class life, American families have found it increasingly necessary to borrow money. We tell our children that a college degree is essential for their success in the modern economy, but few students can afford the ever-increasing costs of higher education without incurring student loans. (1) We extoll the virtues and benefits of homeownership, but the high cost of housing requires most homeowners to have a mortgage loan. (2) As middle-class wages have remained stagnant, consumers have looked to credit to pay for essential expenses like transportation, medical bills, and childcare. As a result, many American households find themselves deeply in debt.

    Too often, these debts have proven to be disastrous. Countless students sought to learn essential job skills and borrowed heavily to do so, but instead became the victims of high-cost, fraudulent, for-profit schools that offered no meaningful vocational training. (3) Homeowners across the country are still grappling with the consequences of the predatory subprime mortgage loans that caused the financial crisis of 2008. (4) While debt may allow some families to succeed, debt cripples the aspirations and ambitions of many others— approximately seventy-seven million Americans have at least one delinquent debt on their credit report. (5) 

    Given the challenges that consumer debt poses to the economic security of so many people, I applaud the Harvard Law & Policy Review for devoting this issue to discussing the rights and obligations of creditors and debtors and to the appropriate policy responses to America’s ongoing struggles with debt.