Dealing With Inequality Requires Progressive Taxes

Family Legacy

This cartoon sums up a fact of our economic system. And it provides all the information you need to appraise the claim so loved by conservatives, “We don’t care about equality of outcomesopportunity.” What they mean is that they don’t care about either. It’s really quite simple: equality of opportunity — or even anything in the same ballpark — is a lie if equality itself is too far out of kilter. The conservatives who don’t care about inequality are just the modern day royalists. They want to enforce the current class makeup of society, but rather than use the idea of “blood” they use the far less reasonable idea of “meritocracy.”

The great cure-all for inequality is “education.” I’ve written about this a lot over the years. It is based on a correlation. Not surprisingly, people with college degrees make more money than people without college degrees. Of course, I’m highly skeptical of the mechanism here. For one thing, it is easier to get a college degree if you are stupid with rich parents than it is if you are smart with poor parents. So to some extent, a college degree is simply an indication of class. But the real reason that people push education is because it is a way of saying, “We can’t do anything right now!” And then they have another couple of decades to come up with a new reason why the rich should never be taxed.

Matt BruenigSo when Bernie Sanders (or Barack Obama) suggest that college be free, I’m not exactly inspired. That’s not to say that I don’t think it is a good idea. But it is not the panacea that many people think it is. As a result, I was very interested to read a recent article by Matt Bruenig, Wealth Inequality and Student Debt. In it, he provided a very useful thought experiment.

First, consider our current system for funding higher education. Two students — one rich and the other poor — go to a college that costs $100,000 for four years. The rich student gets no government assistance, but her parents pay the $100,000 and she ends up with no debt. The poor student gets $50,000 from the state, and nothing from her parents. She ends up with $50,000 in debt. Thus, the rich student is $50,000 ahead of the poor student.

Bernie SandersSecond, consider the Sanders system for funding higher education. Both students pay nothing for college. But the rich student’s family still gives her $100,000 — perhaps as a down-payment for her first house. So she ends up $100,000 ahead and the poor student ends up even. In the first case, the poor student ends up $50,000 worse off. In the second case, the poor student ends up $100,00 worse off. This means that the more progressive system actually increases inequality more than the current system.

Note that this is true whether we are looking at the student alone, or the student’s family. And it is worse than even this makes out. Because a college degree for the rich student is going to be worth more than the college degree of the poor student. The rich student will simply have more opportunities based upon her connections. So the reward for that $100,000 investment is almost certainly far greater than the reward that the poor student gets from her $50,000 investment.

All of this highlights the fact that we need a highly progressive tax system. This, of course, is why the rich are so stuck on the idea of a flat tax. It is considered by them to be “fair.” But, of course, in the case above, it clearly isn’t. The tax system folds back on itself, because it doesn’t benefit the poor as much as it ought to. In the most basic sense, the rich student’s parents should be paying at least $50,000 more in taxes than the poor student’s parents pay. And when it comes to the upper middle class, that may well be the case. But when it comes to the truly wealthy, that isn’t the case at all. As I noted during the 2012 election, in Mitt Romney’s most recent tax year (2011), he had paid almost exactly the same tax rate that I did, even though I had made about $20,000 that year and he had made more than $13 million.

Clearly, there are more specific solutions to this problem. For example, we could just pay the tuition of poor students and not leave them in debt, even as we did nothing for rich students. But ultimately, the “free college” solution is the best. We just have to figure out how to tax everyone fairly. Until we do that, all is lost.

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

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