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Why Does Rising Income Inequality Lead to Reducing Taxes on the Rich?

Might the Gullibility of the American Electorate Have Anything to Do With It?

January 5, 2002

Yesterday New York Times columnist Paul Krugman pointed out that income inequality is increasing so rapidly that "the income of families in the top 1 percent was 10 times that of typical families in 1979, and 23 times and rising in 1997."

To that I might add: in 1980 the typical CEO of a large corporation earned 40 times what a factory worker did.  By 1998, that ratio had ballooned to 419 (yes, four hundred nineteen) times.  (In Great Britain, by contrast, the ratio is still 35 times, and in Japan 20 times).  And of course, during this entire time period, the taxes on the wealthy have been reduced again and again, far more so than for any other income group.

Krugman then asked "You might have expected the concentration of income at the top to provoke populist demands to soak the rich."  Then he posed the $64,000 question:

Why has the response to rising inequality been a drive to reduce taxes on the rich? Good question. It's not a simple matter of rich people voting themselves a better deal: there just aren't enough of them. To understand political trends in the United States we probably need to think about campaign finance, lobbying, and the general power of money to shape political debate.

"Campaign finance, lobbying, and the general power of money to shape political debate" is, for Krugman, an uncharacteristically opaque, if not euphemistic way to answer the question he posed.

I'd put it a little more bluntly: politicians need increasingly large campaign contributions from the wealthy elite in order to wage the type of expensive, media-heavy campaigns now required to be elected to office.  The campaigns (otherwise known as brainwashing) are cleverly designed to convince the mass of voters that these elected officials will govern in the interest of the mass of voters, not the wealthy elite who are funding the campaigns.

Apparently it works.  Masses of U.S. voters seem  convinced that wealthy people finance campaigns in order that the economic interests of the non-wealthy will be given first priority.  But once the politicians are elected, it is invariably the economic interests of the wealthy which guide American tax and trade policy.

There's another line of thought among voters I find amazing.  Readers sending me comments whenever I write something about income inequality sometimes admit that the non-rich are getting the short end of stick, but insist that they don't mind if the rich get the benefit of economic policies now, because the writer hopes to eventually become rich, and wants taxes low for when he achieves that wealthy status!

In his column, Krugman also mentions that the Republicans have moved so far right that

focus groups literally refused to believe accurate descriptions of the stimulus bill that House Republican leaders passed on a party-line vote back in October.

That's the bill that would not only have repealed the corporate alternative minimum tax, but would have refunded to corporations all of the billions of such taxes they paid in the last 15 years.

Well, I bet after a spin-doctor-fashioned campaign replete with heavy television advertising and appropriate sloganeering, a majority of voters would not only have no trouble believing such a bill existed, but would enthusiastically support it.

Some voters would succumb to the argument that such an economic atrocity would benefit the average American.  Other members of the American electorate would probably apply the "well, I'll be rich some day, so it will benefit me then" analysis.

In any event, I'm reminded here of Abraham Lincoln's remark that "You can fool some of the people some of the time and all of the people some of the time, but you can't fool all of the people all of the time."  Politicians don't have to fool all of the people all of the time.  Apparently they can fool enough of the American people enough of the time so that the public repeatedly votes into office elected officials who rob them blind.

This was a selection from The Daily Diatribe

More on Income Inequality

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