Big Idea: To Fight Inequality, Link Worker Pay to Corporate Taxes

With both presidential candidates promising major reform of the federal tax system, we’ll start to hear variations on the phrase, “If you want more of something, tax it less, and if you want less of something, tax it more.” There’s more to taxes than just raising money to support public services and determining who deserves to pay. The tax code sets some basic priorities for the economy and society, so a better way to think about taxes is to ask, “How can we improve the tax code to get the kind of economy we want?”

If there’s one thing we should want less of in our economy, it’s inequality. And what we should want more of is economic opportunity for average working Americans. While we can’t and shouldn’t aspire to perfect equality, the story of the last 30 years has been a staggering shift in the other direction, toward the wealthiest: The top 1 percent, who now receive almost one-fifth of all income, is the big story, but the richest 10 percent have done all right, too. Meanwhile, the income of most of the middle class began to stagnate even before the recession, and the working poor have lost ground. As soon as the recession eased, the pattern got worse, and the income of the richest one-10th of 1 percent increased by more than 20 percent in 2010 alone.

We could use taxes and social programs to redress inequality directly, raising taxes on the wealthiest and using the revenues—after we reduce the deficit and shore up Medicare—to build support for the middle class and the poor. The economists Thomas Piketty and Emanuel Saez, the preeminent experts on inequality, have demonstrated that the top tax rate could go as high as 83 percent without harming economic growth. And in fact, our top rates have been even higher than that at times of rapid growth. But in a world where the very wealthiest hold enormous political power, this is at best a theoretical argument. High nominal tax rates like those of the prosperous 1950s are far outside the scope of political possibility.

But if we think of the tax code as a set of incentives, rather than simply a mechanism to redistribute income, there are creative and effective ways to moderate the extremes of wealth, boost the pay of ordinary workers, make American companies more stable and efficient, and reduce the long-term federal budget deficit..

http://www.good.is/post/big-idea-to-fight-inequality-link-worker-pay-to-corporate-taxes/