Taxes on the top 1% Wealthiest Americans ought to be raised.

Response to Opponent's ArgumentsInequality and Economic GrowthLet me start by saying reminding everyone that correlation does not equal causation. This is a central insight that is absolutely necessary to understanding issues such as this. Indeed, my opponent makes two claims in his argument here:1. ) Raising taxes on the rich would decrease economic inequality2. ) Reducing economic inequality would boost economic growthI will concede that raising taxes on the rich would almost certainly decrease income inequality. However, my opponent does not have a strong case for #2. Indeed, all he offers for evidence here is an article from the economist that, while very interesting, does not actually offer any evidence that inequality lowers economic growth, and a blog post that looks at the correlation between income inequality and GDP per capita. There is absolutely nothing wrong, by the way, with citing a blog post. I always believe in evaluating the argument regardless of the messanger. However, it is important that the blogger or whoever is linked to uses sound data and argumentation. Not surprisingly, the correlation is negative. However, this does not mean that income inequality causes economic growth to decline. It merely means that there is a negative relationship between the two. It is also possible, for instance, that this correlation is due to economic growth decreasing income inequality or a third factor that both increases economic growth and decreases inequality. In other words, my opponent has offered no strong evidence that income inequality lowers economic growth. Instead, he offers a merely establishes correlation without establishing causation. So, the question then becomes what does the evidence actually say about how inequality impacts growth. This very question was explored by Scott Winship for a paper for the Brookings Institute called "Overstating the Costs of Inequality". In this, Winship looks at the available literature. After noting that most of the studies finding a negative impact on growth from inequality focus on developing countries that are not necessarily applicape for developed countries like the USA, Winship notes [1]: "Indeed, one of the most widely cited papers in the inequality debates — a 2011 study by IMF economists Andrew Berg and Jonathan Ostry showing that inequality hurts growth — suffers from this very problem of focusing primarily on developing countries.9 Even putting aside the applicability of these studies, Boushey and Hersh conclude from their review that, "Ultimately, data and methodological issues mean that analyses are too imprecise to deliver definitive answers to this old and central question in economics research. " But the problem is not simply that evidence of inequality's alleged harm to growth is inconclusive or imprecise. There is also significant evidence to the contrary, which throws the left's conclusions about inequality into doubt. Recent work by Harvard's Christopher Jencks (with Dan Andrews and Andrew Leigh) shows that, over the course of the 20th century, within the United States and across developed countries, there was no relationship between changes in inequality and economic growth.10 In fact, between 1960 and 2000, rising inequality coincided with higher growth across these countries. In forthcoming work, University of Arizona sociologist Lane Kenworthy also finds that, since 1979, higher growth in the share of income held by the top 1% of earners has been associated with stronger economic growth across several countries. " In other words, when it comes to developed countries, the evidence does not suggest inequality hurts growth. Indeed, the evidence that inequality boosts growth is actually stronger than the evidence that it hurts growth in developed countries. Winship concludes [1]:"The notion that inequality is stifling economic growth or suppressing the wages of the middle class is simply not supported by the available evidence. " My opponent also makes the point that growth in GDP per capita has outpaced median income growth for the past 30 years. This is largely based on faulty math. Indeed, in order to get comparable figures for median income and GDP per capita, three things need to be corrected for [2]:1. ) Taxable income is not all of income, and median income only looks at this. We need to look at all elements of income to get an accurate gauge of how compensation is growing. Indeed, taxable income only accounted for 58% of national income in 2008 [2].2. ) The average size of the household and tax unit have been shrinking over time. This leads to a fall in taxable income per household that is due to changing household size instead of other factors [2].3. ) GDP per capita and median income are calculated using different measures of inflation. The method for measuring median income likely overstates inflation. This leads to underestimation of median income growth [2]. After controlling for these factors, median income growth looks much better and much closer to GDP per capita growth [2]. I'll also note that my source here is a blog post, but I only link to him because he does the math from other, very reliable, sources like BLS, CBO, etc. In other words, please respond to the argument instead of using an ad hominem to attack the fact that the messanger is a blog. In summary, the evidence suggests that, in developed countries, income inequality does not negatively impact growth. It also suggests that the median income stagnation claim is largely a myth due to mathmatical problems. Spending PowerMy opponent argues that raising the taxes on the rich is a good thing because it decreases the political power of the rich and increases the spending power of the middle class. My opponent does provide evidence that the USA has a good deal of political corruption. However, he does not provide evidence that low taxes on the rich are a major reason for this. He does offer a theory for why this may be, but there is no evidence to back up this theory. To me, the theory seems weak because, ultimately, politicians are decided by votes instead of money. But, I really have nothing to respond to until my opponent provides evidence. My opponent also argues that raising taxes on the rich is good because it boosts the spending power of the middle class. This is very unsound economic reasoning. First, my opponent offers no evidence for his claim that increasing taxes on the rich somehow magically increases spending power of the middle class. It is true that taxing the rich transfers some funds to the government. But, what reason do we have to believe that this will translate into greater discretionary income for the middle class? My opponent does link to a piece by Robert Reich. He also links to a broken link. The piece by Reich relies is heavy in left wing rhetoricbut lacking in strong reasoning. Reich documents the fall in taxation for the richest Americans, but does not make a very strong case for raising taxes on the rich beyond the fact that they used to be higher, which really isn't a strong argument. Even if higher taxes on the rich contributed to greater spending power for the middle class, this wouldn't boost economic growth necessarily. Long term economic growth is driven by supply side factors that affect productivity. Short term growth has a lot more to do with demand. However, even Paul Krugman has argued that inequality is not holding back recovery [3]. Although, of course, Krugman is still very critical of inequality for other reasons. Keynesian WelfareMy opponent then argues for raising taxes on the rich on keynesian grounds. This left me scratching my head. Keynesian economics posits that running deficits to fund public works is good during hard times economically. Keynes did not, to my knowledge, argue that raising taxes on the rich to fund public works was a good economic recovery plan. If anything, Keynes would have likely advocated cutting taxes and increasing public spending during recessions to boost recovery. My opponent makes an even bolder claim: that keynesian economics is responsible for ending the Great Depression. This is the kind of claim that requires evidence, but my opponent offers none. Indeed, most evidence suggests that monetary policy, not keynesian fiscal policy, is responsible for the recovery. This is the explanation that was famously offered by Milton Friedman in his Monetary History of the United States. This book would eventually lead to a major shift in economic thinking on the Great Depression that led many experts to believe that the great depression was caused by monetary policy instead of fiscal policy [4]. Indeed, even Christy Romer, former chair of Obama's counsel of economic advisors, had a paper in the 1990s that found monetary factors were crucial in ending the Great Depression [5]. As for the New Deal, there is evidence that the regime uncertainty caused by FDR's policies (which included higher taxes on the rich) hindered recovery [6]. On top of this, there is strong evidence that the artificially high wages from the New Deal also hindered employment growth [7]ConclusionI have now offered my response to my opponent's arguments for higher taxes on the rich and look forward to the next round. Sources1. ) . http://www.brookings.edu...2.) . http://super-economy.blogspot.com...3.) . http://krugman.blogs.nytimes.com...4.) . http://en.wikipedia.org...5.) . http://www.nber.org...6.) . http://www.independent.org...7.) . http://online.wsj.com...