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The Daily Wildcat

The Daily Wildcat

 

    Column: Inequality affects state legislatures

    A recently published report by Standard & Poor’s stated that income inequality is starting to cause state governments some serious financial heartache.

    As the wealthy spend less than other socioeconomic groups, they reduce potential sales tax revenue. They are often more able to protect their income from income taxes.

    This is causing the age-old dilemma of raising taxes or cutting revenue to bite back with a vengeance. Without a consistent flow of tax revenue, funding for investments like education, healthcare and infrastructure is put in jeopardy.

    According to Standard & Poor’s study, income inequality has slowed the economic recovery following the Great Recession of 2008-09. Of the money earned in 2012, more than 22 percent went to the top 1 percent of income earners. This share has more than doubled since 1979. From 1950-79, there was a 9.97 percentage growth in state tax revenue, while in the first decade of the 2000s, it only grew at 3.62 percent.

    Hardliners on the right and left have their disparate and very familiar prescriptions for a solution. But there is an important question in all of this: How do we grasp the multifaceted issue of income inequality in America? What are the concrete, short-term consequences, and how do we address them?

    More liberal states like California have raised taxes, from personal income to sales, significantly over the past several years. While nobody “likes” taxes, they bring out an effect that is needed.

    For example, much of the top 1 percent’s wealth comes from stocks and investments. Perhaps governments should start taxing stocks and investments. Maybe this will cause the super-rich to remember that there are others struggling to make it at the bottom. Or perhaps this will motivate the super-rich to invest in the bottom, voluntarily. After all, this is where much of the super-rich’s money comes from. Or maybe it will cut the flow of investment, since, you know, we’re taxing investment income now. Who knows? Predicting what irrational humans will do is never easy. Needless to say, taxing blindly is probably not a prudent thing to do.

    Or perhaps one ought to look at how exactly people are spending their money. For example, Washington state has started to tax Netflix, dating centers and Turkish baths. Maybe states should look at what they do and do not tax.

    Wherever we look, it is important to know that any solution must keep in mind a very important precept: Fighting income inequality shouldn’t be about making rich people poorer. Instead, we should be about making more poor people richer. Disincentivizing the rich is a great way to disincentivize creativity and all the great things we enjoy in a capitalist economy like ours.

    Nonetheless, there is no reason to stop people from thinking about creative solutions. For anxious state lawmakers and policy makers, this is just one other reason to realize how big of an issue income inequality really is. It’s not the abstract realm of Thomas Piketty’s “Capital in the Twenty-First Century,” or presidential election rhetoric. The concentration of wealth in this country has direct consequences on state legislatures and their ability to fund the local programs we all enjoy.

    And if the result of that is a tax on Netflix, I think every college student should be paying attention.

    — Casey Hoyack is a philosophy, polictics, economics and law senior. Follow him @Hoyack_

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