Robert Frank points to something that I haven't seen a lot of commentary on: the financial crisis is going to achieve one long-sought political goal, that of reducing inequality.
Recessions are bad for everyone, but they're worse for the wealthy, at least in some sense. The wealthy have more assets to lose, and their income is more dependent on volatile sources like bonuses and stock options. In terms of reducing inequality, the 1929 stock market crash and World War II did more to reduce inequality than changes in policy or the tax code, at least if Piketty and Saez are to be believed. Similarly, the late widening of inequality pretty clearly started with the beginning of the Great Bull Market in 1982.
Of course, losing 2/3 of a fortune is not the same thing as losing your $40,000 a year job; in the most meaningful sense, recessions are still worst for the working stiffs and the poor. As the Journal notes:
So could a narrower wealth gap become the silver lining of the crisis? "Only if you don't like rich people," says Len Burman of the Tax Policy Center. "It's not like their share decline brings improvements for the middle class or the rest of America."
Indeed, this is the problem with the shift towards relying on the wealthy for tax revenue: as the wealthy's income falls faster than everyone else's, so will tax receipts. In the article Saez urges more flattening tax rates, like those enacted by Roosevelt. But Roosevelt was working from essentially a blank slate; income taxes were trivial prior to the Great Depression. It's a lot harder to raise taxes to 70% than to 35%, especially with state and local governments taking a bigger rake. Not least because 70% is a rate at which you almost certainly do end up on the wrong side of the Laffer Curve, reducing both tax take and economic growth. How much are we willing to pay to soak the rich?
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