Notes/Explanation

Tax The Rich CP Answers

2AC — Tax The Rich CP

( ) Permute: Do Both. Inequality is a linear impact. “Double solvency” outweighs the net-benefit.

( ) Structural Violence DA — only the plan can remove the institutional bottleneck preventing market repair.

Grusky 12 — David B. Grusky, Barbara Kimball Browning Professor in the School of Humanities and Sciences and Director of the Center on Poverty and Inequality at Stanford University, Director of the Recession Trends Initiative and the California Welfare Laboratory, former Founding Director of the Center for the Study of Inequality at Cornell University, holds a Ph.D. in Sociology from the University of Wisconsin-Madison, 2012 (“What to Do about Inequality,” Boston Review, March/April, Available Online at https://bostonreview.net/archives/BR37.2/ndf_david_b_grusky_inequality.php, Accessed 07-20-2017)

Education Rent

With all the recent worrying about the travails of the college-educated, it is easy to forget that the payoff of a college education has dramatically increased over the long run, with the sharpest increase occurring in the 1980s. The growing earnings gap between the college-educated and the rest of the labor force is an important source of rising inequality.

But why has this college premium endured, indeed, expanded? To understand the puzzle, let’s imagine that we live in a perfectly competitive economy. In that economy, information about the high returns of a college education would gradually diffuse, workers in pursuit of those returns would invest in college, and the resulting influx of college-educated workers would drive down the premium. The high returns generated by a shortage of educated labor would therefore disappear.

But they haven’t disappeared. The persistence of high returns suggests that institutionalized bottlenecks are preventing workers from responding as they would in a competitive market. Although other explanations are possible, the bottleneck account is appealing because it is consistent with our understanding of how education is rationed to the select few.

Two types of bottlenecks are especially important. The supply of potential college students is artificially lowered because children born into disadvantaged families are poorly prepared for college and, in any event, haven’t the money to afford it. The demand for college students is kept artificially low because most elite universities, both public and private, ration their available slots. It’s not as if Stanford, Harvard, and Berkeley are meeting the rising demand for their degrees by selling some profit-maximizing number of them. If top universities met demand in this way, the outsized benefits of a high-prestige education would disappear.

Is this how a competitive market works? Absolutely not. When, for example, the demand for hybrid cars increased dramatically in the United States, car manufacturers didn’t set up admissions committees charged with evaluating the qualifications of prospective buyers. Instead, they ramped up production to a profit-maximizing level, and the shortage-driven uptick in prices soon corrected itself. We have become so accommodated to high prices for college-educated labor that we don’t appreciate the rationing and market failure that underlie them.

These bottlenecks create inequality by changing the relative size of the college-educated and poorly educated classes. Because bottlenecks generate an artificially small college-educated class, its wages are inflated and its unemployment rate suppressed. Because they generate an artificially bloated class of poorly educated workers, its wages are suppressed and its unemployment rate inflated. This crowding at the bottom has helped build a massive reserve army of unskilled labor evocative of mid-nineteenth century England.

By addressing such market failure with redistribution, we could indeed prop up wages at the bottom, but with all the angst, opposition, and political drama that redistributive programs evoke in a market-loving society. The better response to market failure is to undertake market repair. If all children, even those born into poor families, had access to adequate primary and secondary school training and then to college education, the high unemployment and poor pay at the bottom would be reduced, as would the low unemployment and excessive pay at the top. We’d have less poverty and inequality if we increased the number of slots in higher education and committed to fair and open competition for them.

Who would win and who would lose from such market repair? The losers would be those who are now artificially protected from competition and are therefore reaping excessive returns. The winners, by contrast, are those currently locked out of higher education who would gain access once markets are repaired.

But these are not the only winners. The other main winners are the businesses that currently pay inflated prices for high-skill employees but will no longer have to do so once higher education is opened up fully to competition. It’s hardly in the interest of business to pay the excessive cost of rationed higher education, nor is it in the wider interest of any country to settle for the lower national income that such restrictions on competition imply. If the emerging economic niche for the United States is product innovation, creative oversight of global product streams, and related forms of high-skill production, then we need a well-educated labor force. We risk choking off that high-road strategy by allowing bottlenecks and high labor costs to persist.

The happy conclusion is that market repair, if taken seriously, can yield a higher national income as well as less inequality. Although it’s conventionally argued that a taste for equality can only be indulged at the cost of reducing total output, this standard tradeoff thesis no longer holds once we realize that existing economies, and perhaps especially the U.S. economy, are burdened with inequality-increasing rent.

This rent will not be shorn off with the usual half-hearted, flavor-of-the-day reform efforts. What’s required is a radical overhaul of our education system. The seemingly uncontroversial objectives of such reform would be to provide the same opportunities to rich and poor children alike and to provide enough higher-education slots to meet the additional demand that equalization would generate. In the education reform industry, most initiatives are marketed on the basis of their effects on school quality, and any possible residual effects on equalizing opportunity are treated as a convenient side benefit. That’s a travesty. We should instead begin and end all discussion of reform by asking whether it secures our commitment to equalizing opportunity. This should be our main goal in just the same way that equalizing civil rights was in the 1960s and 1970s. If we were to commit to this objective, as many other countries have, it would be child’s play to settle on the reforms needed to implement it.

( ) Global Leadership DA — education is key to economic growth and competitiveness, military readiness, IP leadership, diplomacy, and national cohesion. Higher taxes don’t solve.

( ) Political Inequality DA — taxing the rich doesn’t decrease their political influence. Closing the education gap is vital to restore democracy.

( ) International Law DA — higher wages won’t change international perception of U.S. human rights credibility and democracy promotion. Federal recognition of a right to education is key.

( ) No Inequality Solvency — higher taxes have a trivial effect.

Long citing Brookings 15 — Heather Long, Senior Writer and Editor at CNN Money, holds a Master’s in Financial Economics from Oxford University, citing a report by scholars at the Brookings Institution, 2015 (“Taxing the rich won't solve inequality,” CNN Money, October 13^th, Available Online at http://money.cnn.com/2015/10/13/news/economy/taxing-the-rich-will-not-curb-inequality/index.html, Accessed 07-20-2017)

Tax the rich more. It's a popular idea on the 2016 campaign trail, but a new study says that won't do much to dent inequality in America.

Experts at the Brookings Institute examined what would happen to the gap between the wealthy and the poor if the U.S. raised the income tax rate on the highest earners to 50%. (It's currently 39.6%).

They found it would have a "trivial effect" on overall income inequality. The U.S. and Israel have the worst inequality in the developed world.

"That such a sizable increase in the top income tax rate leads to a strikingly limited reduction in overall income inequality speaks to the limitations of this particular approach to addressing the broader challenge," wrote economists William Gale, Melissa Kearney and Peter Orszag.

Orszag served as President Obama's budget director early in his first term and is now an executive at Citigroup.

Inequality goes well beyond pay

The researchers also looked at what would happen if all the extra money raised from the tax hike on the rich were given to America's poorest. Lower-income families would receive about $2,650 a year, they found.

That kind of redistribution would lessen inequality a little bit more, but the country would still remain far more unequal than it was in the 1970s.

A big part of the problem is that the richest Americans have already accumulated so much wealth. Their annual incomes -- which would be subject to the higher taxes -- are a small part of their overall empires.

The Brookings researchers are clear that increasing taxes on the wealthiest could still be a good idea. It can be useful to help pay for government programs or aid the poor, but it's important to realize that it wouldn't do much to curb inequality.

1AR — Structural Violence DA

Education is comparatively more important than tax policy.

Piketty 14 — Thomas Piketty, Professor at The School for Advanced Studies in the Social Sciences and at the Paris School of Economics, former Assistant Professor of Economics at the Massachusetts Institute of Technology, holds a Ph.D. from The School for Advanced Studies in the Social Sciences and the London School of Economics and Political Science, 2014 (“Thomas Piketty on Inequality and Capital in the 21st Century,” EconTalk Podcast, September 22^nd, Available Online at http://www.econtalk.org/archives/2014/09/thomas_piketty.html, Accessed 07-14-2017)

Guest: Now I also agree with you--I also agree with you that you cannot do that too much. So at the end of the day, the main policy to reduce inequality is not progressive taxation, is not the minimum wage. It's really education. It's really investing in skills, investing in schools. And this is what I say from page 1 in my book. From page 1 in my book I make very clear that the primary mechanism to reduce inequality in the long run is diffusion of knowledge, diffusion of skills, diffusion of idea of productivity. This is what can explain convergence at the international level-- Russ: Correct. Guest: with emerging countries catching up with [?] countries. And it can also lead to a reduction of inequality within countries, assuming we have educational institutions that are sufficiently inclusive. And from that viewpoint what I find [?] puzzling in the recent evolution and in [?] the United States, is that if you look at the average income of the parents of Harvard and [?] students, this corresponds to the average income of the top 2% of the U.S. distribution of family income. So, it doesn't mean that you have no student below the top 2, but this means that you have very few students below the top 2; and that those who come from the top 2% are sufficiently high up, the top 2 percent; so that the overall average when you [?] the top 2 percent those who [?] as if you were to take it from your students just from the top 2% of the family distribution [?]. Now I think this is quite far from the meritocratic ideal that we all have in mind. I believe it. And I think this is a major challenge for the United States, and also for every country. Let me say very clearly that I'm certainly not going to tell you that the French university system is a system to follow. I'll be very clear about that. So I think the United States has been very good at producing very efficient top universities, but has been less good at promoting equal access to higher education. The average quality--the bottom 50% of the U.S. population does not quite have the high quality training that one might hope. But I think no country in the world, certainly not in France or nowhere in Europe or Japan has found the perfect system to combine efficiency with equality of access to higher education. So I think this is a major challenge for every country. There is a lot to learn from looking at these comparative data. I think every country, including France and the United States, often pretends to be more meritocratic than they really are. And I think people sometimes just don't look at the data. And again, this is as bad and sometimes worse in France than in the United States. So I am not trying to say-- Russ: The United States has a very large public university system, but studies have shown that it tends to benefit high income people as well. So that's a subsidy that is ultimately I think very misplaced. We also have a very poor education system before college, which I think has handicapped [undermined] low income people from low income households.

Only the plan can drive up working class wages.

Grusky 12 — David B. Grusky, Barbara Kimball Browning Professor in the School of Humanities and Sciences and Director of the Center on Poverty and Inequality at Stanford University, Director of the Recession Trends Initiative and the California Welfare Laboratory, former Founding Director of the Center for the Study of Inequality at Cornell University, holds a Ph.D. in Sociology from the University of Wisconsin-Madison, 2012 (“Response: Rents and Reform,” Boston Review, March/April, Available Online at https://bostonreview.net/archives/BR37.2/ndf_david_b_grusky_reply_inequality.php, Accessed 07-20-2017)

These critiques fail to appreciate that unskilled labor is poorly paid precisely because market failure has bloated its ranks. If overcrowding at the bottom were eased by making education more widely available, the earnings of unskilled workers would increase because new opportunities for upward mobility would siphon off some of the competition at the bottom. The best way to raise wages for the working class is to trim the size of the reserve army and thereby limit the number of workers chasing after the shrinking supply of low-skill jobs.

The other big winners, in addition to the working class, are the many who would benefit from a larger national income. By increasing the size of the educated class, we’ll finally reduce its outsized wages and allow the country to build a high-road economy that rests on a reasonably priced supply of well-trained, creative labor. We’ve been priced out of our natural niche in the global economy by rationing education and thus driving up its payoff. If instead we were to follow Bergmann’s advice and simply “deliver benefits” to the bottom, we would forego this boost to national income.

This is not to deny that an opportunity-expanding program will create some losers. I’m sympathetic to Rick Perlstein’s concern that the college-educated will lose out, at least in the short run, when opportunities for higher education are opened up. If labor increasingly migrates from the uneducated to the educated sector, the wages of uneducated labor will increase and those of educated labor will decrease, precisely the zero-sum dynamic that Shikha Dalmia calls into question. Although no one should wish a loss on anyone, the fact is that inequality is partly generated by outsized returns to the college-educated. We can’t address the sources of inequality without taking on the bottlenecks that deliver those outsized returns.

There are any number of ways to provide the additional training and education that’s needed. As Neal McCluskey notes, a major educational ramp-up will likely require heavy public investments, given that education in the United States is principally a public-sector good. How this ramp-up occurs is immaterial from my point of view. What matters is that it happens. If education is no longer rationed to the lucky few, the price of educated labor will drop and the United States will finally be able to become the high-road economy it’s meant to be.

Solving the education opportunity gap is vital to reduce inequality — tax reform isn’t effective.

Grusky 12 — David B. Grusky, Barbara Kimball Browning Professor in the School of Humanities and Sciences and Director of the Center on Poverty and Inequality at Stanford University, Director of the Recession Trends Initiative and the California Welfare Laboratory, former Founding Director of the Center for the Study of Inequality at Cornell University, holds a Ph.D. in Sociology from the University of Wisconsin-Madison, 2012 (“What to Do about Inequality,” Boston Review, March/April, Available Online at https://bostonreview.net/archives/BR37.2/ndf_david_b_grusky_inequality.php, Accessed 07-20-2017)

Really Competitive markets

It has been disheartening to watch commentators, even sympathetic ones, try to shoehorn OWS into a tax-based redistributive agenda. Although tax reform is important, it fails to address the core OWS critique of inequality, misdiagnoses the sources of increasing inequality, and accordingly takes our eye off the prize of fundamental institutional reform.

The institutions that determine compensation are deeply distorted by the visible hand of entrenched and powerful interests. We ought to address this distortion directly through institutional repair. The process will be long and hard, but it should receive political support because it entails aligning our institutions with the rules of fair and open competition that so many Americans embrace. The needed reforms merely require that the rich accept the same harsh market medicine that has for so long been doled out to the poor. If such reform is undertaken, we will end up with much less inequality. To be sure, we will still have some inequality, but at least it will be inequality in which we can believe.

What is the alternative? We could give up hope of institutional repair and settle for rough-and-ready redistribution via taxes and transfers. If we take this road, we should at least do so recognizing that it is nothing more than a pragmatic acknowledgement that the rich and powerful can’t be prevented from shaping the rules to their own advantage. The 1 percent will likely appreciate such pragmatism. If given a choice between paying higher taxes and reforming the rent-ridden institutions that enrich them in the first place, certainly they would opt for the former. This is because tax reform can be readily cast as socialist equality mongering and is accordingly vulnerable to reversal when the political winds change. There’s no similar way to discredit institutional reform focused on equalizing the rules of the game and producing a truly competitive economy for the rich as well as the poor.

The commitment within the general population to equalizing the rules of the game likely trumps all others. There’s much empirical evidence suggesting that Americans are prepared to accept even substantial inequality as long as it’s generated under competitive market rules. It’s therefore wrong to interpret public outrage about CEO pay as a protest against high compensation in and of itself. This outrage is not driven by the class envy about which the GOP presidential candidates so frequently complain. It is, rather, a protest against rationing, corruption, sweetheart deals, and foxes guarding the henhouse. It is a protest, in other words, against the corruption of markets by power. The rush to a tax agenda leaves the corruption untouched and instead fixates on a redistributive band-aid that Americans have never much liked. The market principle is, by contrast, one of our core commitments and a more promising base upon which to take on extreme inequality.