Arizona professor finds that tax progressivity does not matter in creating an equitable society

Most people who have been reading the progressive or the mainstream news media know that the last 30 years have seen the United States become a less equitable society, with fewer people in the middle class and more people who are poor and near poor. By income, assets or any other measure, the top 1% now control much more of the wealth of the country than they did in 1979.

In my view, that net transfer of wealth took place in three ways:

  • Tax rates were lowered and the tax system made less progressive, which means the difference in the tax rate paid by the wealthy and the poor narrowed.
  • Government programs transferred less money to the poor and middle class.
  • Less income went to the wages of the non-owners, non-executives and non-professionals and more went to high earners and to corporate profit.

It has long been a mantra of the left, including myself, that making taxes more progressive is one of the best ways to reduce income and wealth inequality. When I spoke with Professor William Domhoff of “Who Rules America?” fame in Santa Cruz this past January, he began to make the case that maybe we shouldn’t harp so much on tax progressivity.

Earlier this week Professor Domhoff sent me a link to an article at the blog of Professor Lane Kenworthy, Professor of Sociology and Political Science at the University of Arizona in which Professor Kenworthy analyzes how different industrialized countries reduce income inequality. He uses existing statistics, but looks at them in an innovative way.

It turns out that no other country reduces income inequality through a progressive tax system except the United States, the nation that does the worse job of reducing the inequalities of wealth that the free market seems to generate naturally. 

Professor Kenworthy writes that “the chief contribution of taxes to inequality reduction is indirect. Taxes provide the money to fund the transfers that reduce inequality.” He finds that “it is the quantity of the tax rather than its progressivity that matters most.”

Professor Kenworthy reaches the conclusion that we should consider a national consumption tax with all the proceeds earmarked for programs that help the poor and middle class. Kenworthy suggests a 5% tax with funds used for universal healthcare, universal preschool and/or high quality child care. Everyone pays the same rate on a consumption tax, which people and businesses pay when they purchase goods and services, so it is regressive. 

I think the idea of any tax that has all funds earmarked to improving our tattered social service net is a great idea, and certainly worth very serious consideration when we are talking about reforming the tax system. But I warn progressives interested in getting behind this idea not to sever the link between the tax and the earmark to social service programs. If that link is severed, the right-wing will jump on the tax part and then use it to pay down the debt or cut other taxes on the wealthy.

Moreover, I was wondering if perhaps there were a more direct way to transfer wealth, and that’s to implement policies that equalize income, such as:

  • Raise the federal minimum wage
  • End state “right to work” laws and other anti-union laws
  • End privatization of government services, such as prisons, charter schools and military supply line support, since this privatization typically leads to lower salaries for most of the employees of the privatized operation.

No matter how we prioritize the progressive economic agenda, Professor Kenworthy has thought outside the box and uncovered an important idea—that tax progressivity is not important and therefore can be a bargaining chip with the right.

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