Today is scary. Our lizard brains want to hold tighter onto what we have. But embracing a spirit of abundance and thinking about “we, united” versus “me, safe in my status” is exactly what is needed by business owners and leaders.
Why should leaders worry about inequality beyond justice considerations?
GDP growth. We live in a consumer-driven economy. Without a growing middle class, consumption will continue to grow slowly, as the wealthy have much lower propensities to spend, even in today’s luxury branded world. Today, the most prosperous people secure an astoundingly large and rising share of national income, while the worst-off show little to no growth in income (despite rising housing, medical, and education costs). The middle class is disappearing.
Global data shows nations with more equitable income distributions have more rapid real economic growth. Young people’s inability to afford homes and start families in the US is the canary in the coal mine. Homeownership among 25-34 year-olds has fallen ten percentage points from 1960 to 2017, from 44% to 34%. I have to believe it will continue to fall because of the impact of the COVID-19 pandemic and our current recession. A retiring baby boom will worsen consumption patterns.
Ample public services. Obama was right when he said behind every successful business were supportive public services providing the legal system, workers, and infrastructure that support the business. Public goods like defense, education, federal research, and infrastructure require government investments. But the growing financial and physical divide between the classes is reducing support for public investment. Why? Because the wealthy, to meet their own needs, have privatized what was once public. Thus, we see the rise in private schools, gated communities, NetJet subscriptions, recreational clubs, and luxury cars for their children. Why should the wealthy support higher taxes for public investments, their surrogates argue?
The US spends a much smaller share of national income on public goods than most other democracies; yet, looking at our past history, we find the roots of growth in public investments, like interstate highways and research that led to things like the internet. Just like a company’s finances, national income is a lagging indicator. Our leading indicators – US share of global patents, new business start-ups, life expectancy for non-college-educated white men, spell trouble.
Workforce for your company and your care in future years. The percent of children under six living in poverty currently ranges from 30% in Mississippi to a still startling-high 10% in Utah. The ratios are 14% and 4% for extreme poverty (less than half the poverty level.) Through Social Security, we largely solved the issue of poverty among our elderly citizens; but we have too few comparable programs for our children. Over 1.5 million US public school students were homeless in the 2017-2018 school year, a rising number despite an improving economy. Less healthy air, stress, and insufficient communication cause young brains to fall behind. Inadequate schools reinforce the gap. Also reinforcing the gap is the absence of adequate public transportation to the jobs that exist for impoverished youth’s parents.
Healthcare costs. Wonder why healthcare costs continue to grow for your company? You are paying a premium for an unhealthy US population, driven in large by the absence of effective healthcare for our citizens in lower-income classes.
Retaining capitalism. Huge inequality buys huge political influence. We’ve moved from a free-market economy to crony-capitalism, which history proves is always less dynamic economically.
Perhaps you benefit from the current system. But what about your grandchildren?
How do we create change?
The Right proposes cutting taxes. I once firmly believed in the trickle-down theory. A rapidly growing economy, I argued in my doctoral thesis, was the best anti-poverty program around. But we live in an economy that’s far different than that of the mid-1970s. The trickle-down theory falls flat these days when tax rates for the wealthy are so historically low. Furthermore, if trickle-down is so great, why is everyone but the rich not doing so well?
Taxing the wealth of the rich is the Left’s answer. Americans support higher taxes—for everyone but themselves, which is the core political issue.
But as long as these are the only two options on the table, we’ll stay stuck. There are middle-of-the-road options.
Earned income tax credits are a favored approach to help the working poor and they work! Cross-sectional studies of raising the minimum wage also suggest that what higher wages may cost in lost jobs is far lower than expected and the social benefits are significant.
A greater focus on children aged 0-4 (for example, through home visits and high-quality childcare) is needed as the benefit payback is high versus costs. Many are US citizens with non-citizen parents who pay taxes but derive no social benefit from taxes, hurting their children.
We should also close tax loopholes on private equity and hedge fund investors. Warren Buffet is right to say his taxes should not be lower than that of his secretary. Inheritances should be taxed again, with carve-outs to save real family businesses. Why are third-generation Walton family members have more wealth than anyone could spend? Why has a once progressive tax system turned relatively flat?
Outlawing state-to-state competition for corporate locations would help. Tax giveaways and free training programs enable the wealthiest states to get yet wealthier and steal dollars from public investment in less naturally endowed states.
Taxing health benefits of wealthy Medicare recipients makes sense. So would policy to lower payroll taxes funded by a carbon tax.
During the Great Depression, a federal WPA program helped the unemployed. There are enough social problems in need of “hands-on solutions” to warrant another WPA, in particular for the hard-to-employ.
Read your history. Not addressing the inequality problem will yield a draconian change down the road. The economics, not just the need for justice, demand it.