Inequality and Infrastructure

	April 16, 2012
THIS WEEK
George W. Bush resurfaced in New York last week, for a speech on public policy. What has George W. upset enough to rejoin the public debate? He's worrying that Congress will let his tax cuts for deep pockets expire at the end of this year. “If you raise taxes on the so-called rich,” Bush told his audience, “you’re really raising taxes on the job creators.” Yahoo CEO Scott Thompson certainly qualifies as rich. He started at Yahoo this past January with a $27 million annual pay package. But he hardly rates as much of a job creator. Earlier this month, Thompson announced he’ll be axing 2,000 of Yahoo’s 14,100 workers, the sixth mass layoff at Yahoo since 2009. The U.S. Senate will be voting this week on a first step to undo George W.’s generosity to job creators like Scott Thompson. This first step, the “Buffett rule,” aims to mandate at least a 30 percent federal income tax rate on taxpayers who make over $1 million a year. What makes this first step — and many more — so desperately necessary? In this week’s Too Much, we share some answers.
GREED AT A GLANCE
Professors today who suspect their students are buying term papers online can tap into services that check student papers for academic fraud. But Lukas Neville decided to go a different route when he suspected cheating in classes he teaches at Queen's University in Ontario, Canada. Neville started investigating why levels of academic dishonesty are rising. His answer: inequality. Google search queries “seeking term-paper mills and help with cheating,” Neville details in the journal Psychological Science, turn out to be much more likely “to come from states with higher income inequality.” Past research, he notes, links inequality with lower levels of trust. Neville’s take: “If students don't trust each other, some of them might think they have to cheat to keep up with their unscrupulous classmates.” Psychologists have a lucrative new niche. They're training the therapists banks hire to counsel their clients with fortunes worth $25 million and up. Occupy and other protests against inequality have some of these wealthy so spooked that therapists like John Warnick, a consultant with U.S. Bank, don’t use the word “wealthy” with clients anymore. They're opting for “legacy families” instead. Not all the spooked super rich are seeing therapists. Some are just doubling up on security. Mark Pincus, the freshly minted billionaire who runs online gaming giant Zynga, had his firm shell out nearly $1.8 million last year for his home security systems and services. The income gap between the rich and everyone else may have grown wider, apologists for inequality have taken to conceding. But that income gap doesn’t matter because, they contend, the gap between what the rich and everyone else consume hasn’t been widening. In a new paper, researchers from University College London, the University of Chicago, and Stanford skewer the flawed data behind this consumption contention. U.S. consumption inequality between 1980 and 2010, conclude Orazio Attanasio, Erik Hurst, and Luigi Pistaferri, “has increased by nearly the same amount as income inequality.” The latest sign of our consumption gap: A Houston restaurant has been offering a 10-course meal to honor the Titanic’s 100th anniversary. The cost for a table? Just $12,000.	Quote of the Week “In this country, prosperity has never trickled down from the wealthy few.” President Barack Obama, Remarks, Florida Atlantic University, Boca Raton, Florida, April 10, 2012
PETULANT PLUTOCRAT OF THE WEEK
Back last October Bank of America CEO Brian Moynihan railed that the banking giant’s critics “ought to think a little” about all the “good” the bank is doing before they ”start yelling at us.” These days Moynihan might be longing for the days critics just yelled. Last week, Occupy activists staged a “move your money relay” that helped B of A depositors shift their money to community banks and credit unions. Other Occupy-ers are moving living room furniture into B of A branch lobbies. They figure they're entitled to “rent out” the space. After all, their tax dollars funded the B of A bailout. Amid all this ruckus, CEO Moynihan probably isn’t enjoying his just-disclosed $8.1 million 2011 pay. Adding to his angst: He’s making only half the Citigroup CEO take-home — and three other B of A execs last year made more than he did.	Stat of the Week A Washington Post-ABC News poll has just asked Americans to pick the bigger worry, “unfairness in the economic system that favors the wealthy” or “over-regulation of the free market that interferes with growth and prosperity.” They chose the “unfairness,” by a 52-37 percent margin.
inequality by the numbers
	Take Action on Inequality Common Security Clubs/Resilience Circles United for a Fair Economy Wealth for the Common Good OccupyWallStreet Occupy the Board Room Occupy Wall Street-Unions The Other 98% US Uncut
IN FOCUS
The Pothole in Our National Political Psyche Even rich people sooner or later have to drive over bridges. So why aren't the wealthy screaming about America's inadequate — and increasingly unsafe — basic infrastructure? Investing in infrastructure used to be a political no-brainer. Politicians of nearly every ideological stripe regularly supported government spending on infrastructure staples, everything from school buildings to bridges. These pols would, to be sure, disagree on emphasis. The more conservative would push for more spending on highways, for instance, the more liberal for investments in mass transit. But most all elected officials took as a given the necessity of publicly funded infrastructure investment. Businesses simply couldn’t thrive, even conservatives understood, without quality systems in place for transportation, communication, education, and every other basic underpinning of a modern society. Among the American people this consensus for investing in infrastructure remains as solid as ever. Only 6 percent of Americans, one poll last year found, consider infrastructure “not that important” or “not important at all.” But support for infrastructure investing among America’s lawmakers has ebbed considerably. One example: Over the past two years, Congress couldn’t even get its act together to pass a basic transportation funding bill. Overall, U.S. investing in infrastructure has fallen off dramatically from mid-20th century levels. Back in 1968, federal outlays for basic infrastructure amounted to 3.3 percent of the nation’s gross domestic product. This share has sunk by nearly two-thirds. Last year, infrastructure investing made up only 1.3 percent of GDP. Various national groups have translated the story these percentages tell into dollars and cents. The American Society of Civil Engineers estimates that we would need to spend $2.2 trillion, over five years, to adequately “maintain and upgrade” America’s roads, dams, drinking water, school buildings, and the like. But lawmakers in Congress are currently cutting, not adding, dollars for infrastructure. The 2013 budget that has passed the House of Representatives slices “transportation infrastructure investment per capita by 28 percent.” What do stats like these mean for our daily lives? Potholes. Brownouts. Overcrowded buses. Even bridge collapses. None of this makes any sense. We ought to be witnessing, here in 2012, a historic surge in infrastructure investing. Indeed, contends Economic Policy Institute analyst Ethan Pollack, the stars have all aligned for an infrastructure renaissance. On the one hand, we have more motive than ever before for making sizable infrastructure investments. After so many years of disinvesting, things are falling apart. Our basic infrastructure systems desperately need repair and replacement. On the other hand, we have opportunity: The cost of borrowing to fund infrastructure projects, EPI’s Pollack points out, has hit record “low levels.” And the private construction companies that do infrastructure work remain desperate for contracts. They’re asking for less to do infrastructure work. “In other words,” says Pollack, “we’re getting much more bang for our buck than we usually do.” And if we spend those bucks on infrastructure, we would also be creating badly needed jobs that could help juice up the economy. Notes Pollack: “This isn’t win-win, this is win-win-win-win.” Yet our political system seems totally incapable of seizing this “win-win-win-win” moment. What explains this incapacity? Center for American Progress analysts David Madland and Nick Bunker, see inequality as the prime culprit. The pair have just pulled together all the various studies, from both within and outside the United States, that link levels of infrastructure spending to income and wealth distribution. The evidence from these studies all points the same way. The more wealth concentrates, the more feeble a society’s investing in infrastructure. Our long-term decline in federal infrastructure investment — from 3.3 percent of GDP in 1968 to 1.3 percent in 2011 — turns out to mirror almost exactly the long-term shift in income from Americas middle class to America’s rich. And the U.S. states where the rich have gained the most at the expense of the middle class turn out to be the states that invest the least in infrastructure. Why should this be the case? Madland and Bunker cite several dynamics at play here in their new Center for American Progress infrastructure paper. One set of dynamics revolves around the state of a society's middle class. In more equal societies, middle classes will be more robust and politically powerful. Why does this power matter for infrastructure investing? Middle class people have a vested interest in healthy levels of infrastructure investment. They depend on good roads, schools, and transit. Wealthy people don’t. If public services frazzle, they can opt out. They can send their kids to private schools. They can commute by helicopter to avoid traffic congestion. And the more inequality in society, the more political leaders will lean their way — and deny public goods and services the funds they need to thrive. Some wealthy, Madland and Bunker acknowledge, do see the connection between infrastructure and healthy economic development. But increased investment in infrastructure demands higher taxes, and lower tax rates have always been among the “more cherished priorities of the rich.” “So when push comes to shove,” Madland and Bunker posit, “infrastructure is likely to take a backseat to keeping taxes low.” A deeper dynamic also seems to be at work. Higher levels of economic inequality, studies show, “can breed a selfish orientation toward public policy.” By contrast, notes the new Center for American Progress analysis, people in more equal, strong middle-class societies “feel they share a similar fate” and more willingly make investments that may not personally benefit them directly. A “significant body of evidence,” the analysis concludes, “suggests a strong middle class is important for public investments.” Unequal societies — like the 21st century United States — have weak middle classes. That leaves Americans with a basic choice. We can press, on every front, for greater equality. Or spend more time looking out for potholes.	New Wisdom on Wealth Daisy Grewal, How Wealth Reduces Compassion, Scientific American, April 10, 2012. Empathy for others declines, the research shows, as riches grow. Johnny Williams, Maxing Out, CounterPunch, April 10, 2012. A Trinity College sociologist makes the case for subjecting income over 25 times the minimum wage to a 100 percent tax, creating, in effect, a “maximum wage.” Timothy Noah, Crankocracy In America, New Republic, April 19, 2012. Super wealthy “cranks” have made the most out of the 2010 Supreme Court decision that essentially ends limits on campaign contributions. Greg Sargent, Karl Rove and company are losing the argument over inequality, Washington Post, April 10, 2012. The emptiness of the right-wing push-back against the Buffett Rule campaign. Mark Thoma, Rolling the Dice for the Haves and Have Nots, Fiscal Times, April 10, 2012. Why taxing the rich makes sense, whatever explanation of why inequality is growing you choose. Harold Meyerson, An economic recovery that leaves workers further behind, Washington Post, April 11, 2012. The recovery's big problem: its concentration “almost entirely among the very rich.” Chuck Marr and Chye-Ching Huang, Misconceptions and Realities About Who Pays Taxes, Center on Budget and Policy Priorities, April 11, 2012. Debunking the myth that low-income Americans pay no taxes. Wallace Turbeville, Taxing Wall Street Speculation, American Prospect, April 11, 2012. A better way to go after the top 1 percent than the White House's proposed “Buffett rule.” Robert Reich, Why the Buffett Rule Sets the Bar Too Low, Social Europe Journal, April 11, 2012. We need to restore top U.S. tax rates to pre-1980 levels and match the capital gains rate to the income tax top rate.
In Review
Setting the Record Straight on Tax Burdens Citizens for Tax Justice, Who Pays Taxes in America? Washington, D.C., April 4, 2012. Turn on Fox News or listen to conservative talk radio and you won’t have to wait long until someone starts whining about how much of their incomes the rich have to pay in taxes — and how little, the lament coninues, that the poorest in our midst pay out. All this whining would no doubt delight Teddy Roosevelt if this former President somehow suddenly reappeared among us. A century ago, Teddy and fellow reformers fought for steeply graduated tax rates. The higher the income, they believed, the higher the tax rate should go. We call this principle “progressive taxation.” We have, today in the United States, precious little of it. Federal income tax rates do, to be sure, rise as income rises. But the tax code exempts one huge category of income — income from investments — from these rising rates. And many state and local tax levies — like sales taxes — subject rich and poor to the exact same tax. Cheerleaders for our unequal status quo simply ignore all these regressive state and local taxes when they start whining about how much the rich have to pay in taxes. Researchers at Citizens for Tax Justice, on the other hand, ignore nothing in their just-released new report on who’s paying taxes in America. The new CTJ research looks at all the taxes Americans pay. Federal and state income taxes. Federal payroll taxes for Social Security and Medicare. Federal excise taxes on things like gasoline. State and local property and sales taxes.