Question 1 Income Inequality
Hello, Everyone - Income inequality is an issue that has been in the news lately. The Occupy Wall Street and other "occupy" movements/settlements of a few years ago are related to the macroeconomic coordination problem of "for whom" to produce goods and services. More recently, the debates among the candidates for President and the proposals to increase the minimum wage have kept income inequality in the news.
In addition, in the U.S. many people who earn very, very high incomes pay lower income taxes than middle- to low-income people. An interesting study of tax rates from 1945 - 2010 by the Congressional Research Office, which is attached to this message, concluded that:
Analysis of such data suggests the reduction in the top tax rates have had little association with saving, investment, or productivity growth. However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. (Hungerford, 2012, para. 4)
Class - Given the above information, should the income tax rates on the richest members of our society be raised in order to foster greater income equality? Why or why not?
Question 2 Social Security Tax Cap
Jeffrey noted that ". . . making it to a level were you make the money that places you in a different tax bracket also takes you a step back in that you get taxed so hard." The exception is Social Security taxes. For example, in 2015, social security taxes were only be collected on wages up to $118,500; any wages earned over $118,500 were not subject to social security taxes. In 2016, that wage tax cap remains unchanged at $118,500.
This is also a hot topic for the candidates for President. According to the CNN article and video at https://money.cnn.com/2016/01/19/pf/taxes/bernie-sanders-taxes/, ". . . Sanders has also proposed to bolster Social Security funding by making the wealthy pay more into the program. He would do so by subjecting any income over $250,000 to the 6.2 % payroll tax, which currently only applies to the first $118,500 in wages" (Sahandi, 2016, para. 20)
The wage cap debate leads to the question of whether it is fair for someone making $118,500 a year to pay the same amount of social security taxes as someone who makes a million dollars a year.
Class - Is the wage cap on social security taxes fair? Is it ethical? Should it be raised?
Question 3 Did higher income taxes discourage business owners during 1950s, 1960s, and 1970s?
Reginald alluded to how increasing taxes on the richer members of society might hurt the economy because those are people who create business and employment. I would argue that consumers, like you and me, create jobs when we buy things. Consumer demand for goods and services creates jobs. So, with a more equal distribution of income and wealth, the demand for goods and services would increase and more jobs would be created to fulfill that demand.
Class -- During the 1950s, the top marginal Federal income tax rate was above 90 percent . . . that's right 90 percent! Also, during the 1960s and 1970s, the top marginal Federal income tax rate was 70 percent or higher. (IRS, 2016) Do the economic conditions of the 1950s, 1960s, and 1970s support or refute the contention that high marginal tax rates will discourage people from creating businesses?
Question 4 Income Inequality
Joel and Class -- Joel said ". . . income equality will continue since the money paid on taxes does not affect the income of bottom tier or working class. The higher taxes simply puts money into the political scene which in turn will need to determine how the additional money is used.
Let's consider increasing taxes on higher income households and using that money to increase the earned income tax credit . . . how would that affect income inequality?
Question 5 How would you bring jobs back to the US?
Hello, Everyone -- During the Republican and Democratic debates, there has been discussion of the "problem" of U.S. jobs being outsourcing to foreign countries. A term for moving jobs to other countries is also known asoffshoring. For example, The Daily Beast article, Donald Trump and Bernie Sanders Are Delusional on Trade Policy, by Marshall and Gerwin (April 2016) discusses how Donald Trump has vowed to bring jobs back to the U.S. and how Bernie Sanders has come out against trade agreements the U.S. has made. That article is available at https://www.thedailybeast.com/articles/2016/04/11/donald-trump-and-bernie-sanders-are-delusional-on-trade-policy.html.
The CNN article and video, Why it would be tough for Trump to bring jobs back from China, which is available at https://money.cnn.com/2016/02/12/news/economy/donald-trump-china-mexico-jobs/index.html?iid=hp-toplead-dom also discusses the difficulties in bringing jobs back to the U.S.
Class -- Given the information we have covered in this class, if Donald Trump or Bernie Sanders were elected President, would they be able to bring jobs back to the U.S. Why or why not? How would you bring jobs back to the U.S.?
P.S. Let's keep this discussion cordial . . . our discussion should focus on economics rather than politics and who you might or not might support to be our next President. Thanks!
Question 6 Increase in Income Inequality
Shirley, Cari, and All -- As Shirley and Cari noted, a dramatic drop in the corporate tax rate would likely increase income inequality, which is already very high by historical standards. In addition, an increase in tariffs on goods imported from China would hurt middle- and lower-income households more than uppper-income households, which would further increase income inequality.
Class -- What comments, questions, or real-world examples do you have on the effects of a decrease in the corporate income tax and an increase in tariffs?
Question 7 Incentives to Bring Jobs Back: Carrot or the stick
Shirley noted that rebuilding the U.S. infrastructure is a good way to put people back to work on projects that would increase U.S. productivity. Let's get back to the issue of whether jobs could be brought back to the U.S. . . . to induce firms to move their operations back to the U.S., the Federal government could use the carrot (rewards) or the stick (penalties).
Rewards might include tax credits or other assistance, and penalties might include fines, tariffs, or other trade restrictions on importing products or services made by U.S. firms operation abroad.
Class - Who would be helped and who would be harmed if the government provided assistance to firms that moved jobs back to the U.S.? Who would benefit by implementing fines on U.S. firms that offshore jobs or by erecting trade restrictions on the importation of products of services made by those firms? Who would be harmed? Why would assessing fines on U.S. firms that outsource jobs to foreign countries put those firms at a competitive disadvantage? What firms would gain a competitive advantage over those U.S. firms?