0 votes
asked ago in Current Economic Issues by (490 points)
Alexandria Ocasio-Cortez has started a public debate about raising the the top marginal tax rate. I’ve seen that Saez and Zucman have chimed in, but what perspectives and arguments do you think are missing?

commented ago by (950 points)
edited ago by
I have heard that the average income of firm executive chiefs is around 250000 dollars per year. I'm right? That isn't more than the 25 pecent of the total wages of a company. I'm not really sure if this datum is incorrect. I have read Joseph Stiglitz work and I'm not really sure if the 90 percent of income is regarding the wealth accrued and not the income received by executives. Can you make it clear for me? There are demand reasons that don't allow an income larger than those 250000 dollars I can't explain through here. I know a few CEOs are earning more than a million dollars per year, while other workers of the company are earning less than 1000 dollars in a few developing countries. That's a big hole in the aggregated demand for the economy of a nation. So if the 90 percent of income regards the excutives' income we are in a deep problem.

I'm sorry if my English is not perfect I was born in Spain.

1 Answer

+1 vote
answered ago by (810 points)
The basis of society is not the private market, but rather Public Goods. Imagine a town in a developing country where businesses want to open up stores and sell, but the people are not educated and not healthy. The streets are dangerous. The police force is ineffective. The economy suffers due to the lack of Public Goods which rely upon taxes. Businesses cannot make a lot of money in those towns because Public goods have been scarce for many years.
The reason for governments is primarily to give a way for society to tax itself in order to provide Public Goods. Private businesses do not provide Public Goods efficiently. When the quality of Public Goods is affected from civil war or strained governmental budgets, the quality of life and the economy suffer.
So it is not only inequality at stake. The economic foundation of what really made the United States great is at stake. This refers to the infrastructure of Pubic Goods and services which includes financial support for education, health, retirement and safety.
The ability to keep the US great depends entirely upon the US government receiving the taxes necessary to provide Public Goods and Services.
So it is not just inequality and democracy at risk, but the foundation of the US economy.
The effect of reduced support for Public Goods takes years to see. Yet we are seeing the effects as child mortality rises in the US above other advanced countries, and as years of life decline among the elderly. We are seeing education levels decreasing too.
We see a generation of people, mostly baby-boomers, who do not want to pay taxes. They come from the "me" generation. But as the millennials gain political voice, we will see efforts to increase support for society.
The goal of economics is to maximize the net social benefits of the economy. The US government is trying to maximize net private benefits to capital, assuming this will increase benefits to labor. Not wise. No wonder we see an economy with "secular stagnation".
So as time goes on and the baby-boomers fade away, government will get back to providing for society as a whole. We are seeing this happening already.