Why Social Workers Should Address Economic Inequality

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I began discussing economic inequality in my classrooms more than a decade ago when President Bush successfully pushed through Congress another round of supply-side tax cuts. Since then, there have been continuous discussions about the consequences of having so much of the nation’s wealth concentrated in the hands of a few super wealthy individuals and families.

In remarks given at the ARC in southeast Washington, DC in December 2013, President Barack Obama called economic inequality the defining challenge of our time. That economic inequality is a phenomenon that needs to be addressed is hardly debated these days. However, no one seems to have a politically viable plan to reverse the current trend, so we can only expect it to worsen.

Researchers Emmanuel Saez and Thomas Piketty have been documenting trends in economic inequality for more than a decade. Saez, an economics professor at the University of California at Berkeley and director of the Center for Equitable Growth has published numerous research articles on economic inequality with Piketty and others.

A 2014 paper with Gabriel Zucman—Wealth Inequality in the United States Since 1913—documented the growth in the share of wealth held by the wealthiest individuals and families with slides that provide a visual representation of the largess. Piketty, an economics professor at the Paris School of Economics created a firestorm among conservative economists with his book Capital in the Twenty-First Century, in which he concluded unchecked economic inequality may not reach the destructive levels predicted by Karl Marx, but could begin to undermine democracy.

The Roosevelt Institute recently released a compendium of social and economic policies that, according to Nobel Laureate Joseph Stiglitz, will promote economic growth and more shared prosperity. Titled “Rewriting the Rules of the American Economy”, the report features ideas of top progressive economic thinkers and promotes policy changes that address financial regulation, labor unions, progressive taxation and human capital investments that they say will create broader opportunity and a more egalitarian society.

Stiglitz, the former chief economic advisor to President Bill Clinton and former president of the World Bank, stipulates that economic inequality is not inevitable—that the notion there is a tradeoff between economic growth and inequality is false, and that the market is not free and infallible but determined by the rules and policies that we have put into place. He says new rules are needed.

Across the pond, the renowned scholar Sir Tony Atkinson has been building a case for policies that promote social justice for decades. In his latest book—Inequality: What Can Be Done?released earlier this month, he lays out a 15-point plan to address economic inequality that includes raising the highest marginal tax rate to 65 percent. Take Jared Bernstein’s advice like I did and give a listen to this very compelling lecture and discussion by Sir Tony Atkinson. He says many things that are worth hearing. One thing he says that is undeniable is that neither side of the political spectrum has debated this escalating calamity in a meaningful way.

The American public has not made much of the issue despite the fact that 45 million Americans are living below the poverty threshold, many older Americans are facing a retirement crisis, and as Robert Putnam describes in his recent book—Our Kids: The American Dream in Crisis—for millions of children in the United States, the myth of the American Dream is little more than a fairy tale.

In a February AP/GfK poll, 68 percent of respondents say the rich are not paying their fair share of taxes. Yet all that we have seen in terms of public outrage was the relatively short-lived Occupy Wall Street demonstrations that never became the movement it threatened to be.

My understanding of being a social worker begins with a commitment to the pursuit of social justice for all Americans especially the most vulnerable among us. So the question is: what are social workers doing to affect social change? Are we merely helping people to cope with the status quo?

I am hearing from quite a few young social workers that they are not satisfied with what our profession is doing to change present circumstances. They believe that social workers must be more engaged in our nation’s politics and so do I. So does Nancy Humphreys and Tanya Rhodes Smith. There are enough social workers to lead the charge to demand that Hillary Clinton and other Democratic candidates address economic inequality.

As Frederick Douglass said: “If there is no struggle, there is no progress. Those who profess to favor freedom, and yet depreciate agitation, are men who want crops without plowing up the ground. They want rain without thunder and lightning. They want the ocean without the awful roar of its many waters. This struggle may be a moral one; or it may be a physical one; or it may be both moral and physical; but it must be a struggle. Power concedes nothing without a demand. It never did and it never will.”

Tax the Rich: Research Supports A More Progressive Taxation

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In an issue brief from the Washington Center for Equitable Growth, policy analyst Nick Bunker weighed in on the ongoing debate about marginal tax rates and economic growth. He points to research by economists Thomas Piketty of the Paris School of Economics, Emmanuel Saez at the University of California-Berkeley, and Stefanie Stantchava at Harvard University whose paper, “Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities,” concludes the optimal top tax rate on labor is 83 percent. There has been an ongoing debate about the effect of marginal tax rates on economic growth. Piketty and company argue that tax rates for upper income earners could be much higher without impacting economic growth and could result in higher wages for average workers.

According a report published by the Congress Research Service (CRS) in 2012, the top marginal tax rate throughout the 1940s and 1950s was above 90 percent. It had been lowered to 35 percent at the time of the report; it is now 39.6 percent. Also the tax rate for capital gains had been 25 percent during the 1950s and 1960s, 35 percent during the 1970s, and was 15 percent in 2012 at the time the report was published.

Thomas L. Hungerford, the public finance specialist at CRS who authored the report noted that GDP increased by an average of 4.2 percent during the 1950s, and real per capita growth increased annually at a rate of 2.4 percent compared to a GDP growth rate in the 2000s of 1.7 percent and annual real per capital growth of less than one percent following the Bush tax cuts.

Hungerford concluded there was no definitive evidence of an association between marginal tax rates and economic growth which angered congressional Republicans who suppressed the report contending it had methodological flaws. Hungerford’s findings were at odds with supply-side theories that tax cuts would result in increased economic growth.

Despite any real evidence that tax cuts for “job creators” are the remedies for our anemic economy, congressional Republicans continue to promote tax reforms that lower marginal rates for top income earners. In the meantime, the economy continues to sputter because most consumers do not have the disposable income needed to buy the goods and services that would put more people back to work or in fulltime positions with higher wages.

The fact that the country experienced solid economic growth when top marginal rates were much higher than they are today suggests that current Republican tax reform proposals are based more on ideology than fact. Yet we see few if any Democratic tax reform proposals that would significantly increase top marginal rates while providing tax relief for the middle class. Piketty and company say it is not only plausible but may help restore the economy.

Without going into great detail—you can read the original publication here—the researchers expanded their analysis beyond the conventional idea that high income earners respond to higher marginal rates by trading some of their working time for more leisure time. They looked at additional ways high earners behave in response to higher marginal rates.

Top wage earners may look to shift their wage income to capital income such as stock options in order to avoid higher income taxes, or reduce their rent-seeking behaviors because lower tax rates provide an incentive for pursuing greater compensation.

They found top earners do not tend to shift their income in response to tax rates and—using an international dataset—they found that lower tax rates are associated with higher income for corporate executives supporting the idea that higher tax rates are a disincentive for corporate executives to cannibalize corporate profits.

Piketty, Saez and Stantchava found that combining elasticities for labor supply, taxation avoidance, and bargaining, led to an optimal top tax rate on labor of 83 percent. If you only consider the effect of the overall elasticity of income to tax rates, the optimal top tax rate on labor would be 57 still much higher to today’s current rate of 39.6 percent.

The idea that income redistributive policies are a death knell for the economy has been preached so much that there is nearly universal acceptance of this as the gospel truth by the right and the left yet there is scant evidence to confirm this belief. Here Bunker showcases evidence that clearly disputes the contention.

Children in the South Face Steepest Slope in Escaping Poverty

New Research, analyzing census data and other quantitative data sources, shows that children in the south face the steepest climb when attempting to escape poverty. The ability to move up the income ladder, otherwise known as income mobility, is a reliable measure of economic mobility or the ability to change one’s overall economic status. New research by Raj Chetty, Nathaniel Hendren, Patrick Kline, and Emmanuel Saez, sponsored by the University of California Berkeley and Harvard, looked at how tax expenditures affect inter-generational income mobility.

The main part of their research involved looking at the income of adults (30 or older)  in comparison to the income of their parents. The research paints a startling picture of trying to escape poverty and climbing the income ladder. When it comes to economic mobility, being born in the right part of the country definitely helps.

The study — based on millions of anonymous earnings records and being released this week by a team of top academic economists — is the first with enough data to compare upward mobility across metropolitan areas. These comparisons provide some of the most powerful evidence so far about the factors that seem to drive people’s chances of rising beyond the station of their birth, including education, family structure and the economic layout of metropolitan areas. Read full New York Times article

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In southern Cities like Atlanta, a child born into a family in the 20th percentile ($25 K) or lower will on average will only climb to the 35th (42 K), and only 8 % of children at this level will ever be considered a top earner at $107 K or more. Atlanta though isn’t the worst place for income mobility, in the greater Eufaula area of Georgia a child only has a 2.7% of climbing from the bottom fifth to the top fifth of the income distribution. Georgia, Louisiana, and the Carolina’s have the lowest rates of income mobility.

The New York Times article includes interactive maps where you can view the income mobility rates for different areas and starting income levels, to see what the average earnings a child from that background will have by the time they reach 30.

So what does all this mean? It means that economically disadvantaged families in the south are less likely to escape the cycle of poverty than families in the midwest, northeast, or western parts of the country. Notable exceptions to this include the areas near:

  • Detroit, Grand Rapids, and Kalamazoo Michigan
  • Cleveland, Columbus, Ohio
  • Indianapolis, Indiana
  • Chicago, Illinois
  • Milwaukee, Wisconsin
  • Nome and Bethel, Alaska
  • Mission, South Dakota

View the Truth and Hope Poverty Tour of North Carolina video for more information.

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