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High School Debate on Inequality
Major Update: The Relationship Between Inequality, Economic Systems and Economic Growth (10 pgs)
High School Debate on Inequality
Social Security Reform
The current system is in trouble. If nothing is done, in just ten years, 66 million Social Security beneficiaries will see their monthly benefit checks cut by 23 percent. That would be financially devastating for retirees at the bottom of the income ladder – who depend on Social Security for their entire income.
Looking indefinitely into the future, the Social Security Trustees report that the system has an unfunded liability of $65.9 trillion. That’s the difference between the promises we are making and the expected revenues that will be available to keep those promises. In current dollar figures, it is equal to 2½ times the size of our entire economy.
Boston University professor Laurance Kotlikoff has proposed a solution. Going forward, workers would be required to pay 10 percent of their wages into an investment fund to secure future benefits that are currently unfunded.
Although the 10% contribution is proportional to income, it is made progressive by government’s matching the contributions of low-income workers and making contributions on behalf of the disabled and the unemployed. Another progressive feature is requiring ownership of the contributions to be split equally between spouses. This protects homemakers who get nothing from their spouse’s payroll taxes under the current system if they get divorced within ten years.
The payment of benefits during the retirement years is dependent on the financial success of the investment fund. But retirees will do no worse than under the current system’s promised benefits, and the proposal maintains and even enhances the progressivity of the current benefit structure.
This proposal (1) saves Social Security – which is itself a progressive income transfer system and (2) does so in a way that further redistributes wealth from the top to the bottom of the income ladder.
Premise: Most poverty is caused by avoidable behavior
Taking three steps — (1) getting at least a high school degree, (2) working full-time in your 20s, and (3) marrying before having children — will give young adults an unparalleled shot at realizing the American Dream. Research indicates that the vast majority (86%) of young adults who take these three steps reach the middle class or higher in their 30s and that 97% avoid poverty at this stage in life.
Problems: (1) low-income kids get trapped in schools that do not meet their needs and have no alternative educational opportunities; (2) our tax and welfare programs discourage work; and (3) our tax and welfare programs discourage marriage with a “marriage tax.”
Solution 1: Reform public programs that encourage dysfunctional behavior
Solution 2: Convert cash entitlements into programs that encourage work and marriage
To strengthen the financial foundations of working families, Congress should pass legislation advancing a permanent, generous family benefit that reinforces work and marriage, loosely modeled on the Family Security Act (2.0), from Senators Mitt Romney and Steve Daines. Under that proposal, families with at least $10,000 in earned income in the last year would receive $4,200 per child per year for children aged zero to five and $3,000 per child for those aged six to 17, paid in monthly installments of $350 and $250, respectively. Families whose income fell below the $10,000 threshold would receive a fraction of the benefit commensurate with their earned income. Such a policy could further support family formation by adding a 20% supplement to the credit per child for married households.
Important: recipients only get this tax credit if they work and have labor income.
Financing option 1: The cost to the federal govenrmtn of enacting these changes should be funded by raising across-the-board rates, if necessary, in the current income tax – which is already the most progressive tax structure in the developed world.
Financing option 2: Since economic growth is the most effective anti-poverty program the world has ever seen [PV: supply link to our update on this], ideal taxation is taxation that does not reduce saving and investment. Replace the income tax with a progressive consumption tax so that people are taxed on what they take out of the system rather than on what they put into the system. A national sales tax, a value added tax and a flat tax are three forms of consumption taxation.
Reduce Taxes on the Poor
One way to reduce inequality is by reducing taxes on low-income families and replace them with the far more progressive income tax.
The income tax is highly progressive. It takes a higher portion of the income of the rich than the poor. But federal, state and local governments raise revenues in a number of ways that are regressive, taking a greater portion of the incomes of the poor than the rich. In some cases, the total dollar amounts paid by the poor are higher than the amounts paid by the rich.
One popular way of raising state revenue is through a state-run lottery (coupled with a prohibition on competing private lotteries). This way of raising funds is highly regressive:
- The dollar amount spent on the lottery by the lowest-income individuals (earning less than $10,000 annually) is twice as much as the highest earners (earning more than $100,000 annually).
- But lotteries have worse odds than other forms of gambling; in fact, states retain some 33 cents of each dollar of lottery revenue — whereas privately owned casinos keep just 4.4 percent ofthe take.
Another popular revenue source is taxes on tobacco. Yet:
- One-third of lower-income adults smoke versus one-fifth of middle- and high-income earners, according to the Centers for Disease Control and Prevention.
- High school graduates who smoke spend some $1,453 on tobacco products each year, versus just $1,248 for smokers with professional degrees.
- High school dropouts who smoke spend three to four times as much of their income on tobacco products as professionals who smoke (4.47 percent and 1.27 percent, respectively).
In addition to direct taxation, state governments have imposed indirect costs on tobacco users through litigation. The Master Settlement Agreement between the major tobacco companies and 46 states requires the tobacco companies to pay the states $200 billion over 25 years to compensate for state health care costs attributed to smoking. More than 90 percent of the settlement costs are passed on to consumers. In fact, the settlement raised the price of cigarettes about 45 cents per pack.
Taxes on beer, wine and liquor also burden the poor disproportionately. Consider:
- The portion of income spent on alcoholic beverages by the lowest fifth of earners is double that of middle earners and more than three times that of the highest earners, on the average.
- Lower-income earners who actually purchase alcohol spend an average of $1,158 a year —more than the $1,092 spent by
- middle earners — and 10 times the portion of their total income as the highest earners
Some advocates claim taxes on harmful behaviors — like smoking and excessive drinking — are justified to recoup the costs those activities impose on others, such as secondhand smoke and drunk driving. Although the evidence is mixed, it appears that taxes on tobacco already more than compensate for the social costs of smoking. Even though alcohol consumers as a group do not pay for all the costs imposed on society by alcoholism, there is no reason to punish moderate drinkers for the behavior of alcoholics.
Advocates also claim these taxes encourage people to change their behaviors in socially desirable ways, because the taxes are almost entirely passed on to consumers. However, when prices for tobacco and alcohol products rise due to tax increases, demand for these products does not go down much. A few consumers will quit and many will substitute lower-cost brands, but most lower-income smokers and drinkers will continue to use tobacco and alcohol. Thus, raising taxes on these products makes the tax burden even more regressive.
Furthermore, the evidence indicates that these taxes are designed to raise revenue, rather than discourage unhealthy behavior. For example, if the true purpose of taxes on tobacco products is to recoup the external costs to society, states should levy lower taxes on smokeless products. While smokeless tobacco is not safe, studies suggest it is safer than smoking cigarettes. Yet, about a fifth of the states charge higher taxes on smokeless tobacco than cigarettes:
- Per $1 of wholesale price, taxes in Massachusetts are 90 cents for smokeless products versus 68 cents for cigarettes; in Minnesota, 70 cents versus 55.4 cents; and in Oklahoma, 60 cents versus 46.4 cents.
- In Texas, smokeless tobacco taxes are nearly twice as high as cigarette taxes, 35 cents versus 18 cents.
Poorer taxpayers are also disproportionately burdened by excise taxes imposed on “necessities,” such as gasoline, utilities and telephone services. Since lower-income households spend more of their incomes on these items, they pay a greater share of these taxes. For instance:
- People making $24,000 a year spend more than twice as much of their income on gasoline as those earning five times as much.
- People making less than $10,000 a year spend nearly one-fifth of their incomes (18.8 percent) on necessities subject to excise taxes, including utilities and public services, and they pay almost six times as much of their incomes on these taxes as the highest earners.
The lowest fifth of income earners spend nearly one-third of their income on alcohol, tobacco, utilities and gasoline, on the average. By contrast, the highest earners spend just 6 percent of their income
on these items. Thus, taxes on these products are especially burdensome to the poor.
[Note: this is a 2007 study and the numbers should be updated]
The posts displayed below all offer updated information and responses to the primary debater resources offered here.
We have never really had a genuine universal basic income experiment in the US.
One of the most prominent experiments took place in Stockton, California, in February 2019. The program gave 125 of the city’s residents $500 per month. The results were seen as positive, with the control group experiencing 1.5 times more income volatility than those who received the funds. The share of participants with full-time employment rose from 28% at the start of the program to 40% a year later. Meanwhile, the control group only saw a 5% increase in full-time employment over the same period.
From 1940 to 2019, Americans’ life expectancy rose by almost 16 years, while the share of the U.S. population 65 and older grew from 9.8% to 16.7%. The elderly have progressively more healthy years to work. Most important, increased life spans have meant that older Americans’ wealth portfolios have been able to compound for longer.
Proponents of reparations cite past housing discrimination as a primary driver of today’s racial wealth gap.
The Federal Housing Administration (FHA) was established in 1934 to provide federal insurance for home loans and it led to a huge increase in home ownership in the US. In determining which residences to insure, the agency instructed underwriters to consider, among other things, a community’s “economic stability” and its “protection from adverse influences.” This resulted in a practice known as “redlining.”
Yet, between 1940 and 1980, homeownership among blacks rose faster than it did among whites. (37% v. 34%)
Unlike the Official Poverty Measure, we include both cash and in-kind programs designed to fight poverty, including the market value of food stamps (now the Supplemental Nutrition Assistance Program, or SNAP), the school lunch program, housing assistance, and health insurance.
VALUATING THE SUCCESS OF PRESIDENT JOHNSON’S WAR ON POVERTY: REVISITING THE HISTORICAL RECORD USING AN ABSOLUTE FULL-INCOME POVERTY MEASURE by Richard V. Burkhauser, Kevin Corinth. James Elwell and Jeff Larrimore
In effect, Congress has decided to penalize marriage most at life stages when children benefit most from the commitment of more than one adult.
For young, low-income couples: Earn an additional $10,000, and it’s not uncommon to be left with half of that amount or less, even before counting the cost of items like commuting to work and childcare.
By contrast, when couples are past the normal child rearing age, Social Security is designed so that there are almost no marriage penalties and only marriage bonuses — in the range of $100,000 or more.
First, SNAP participants have very low employment rates, partly because SNAP disincentivizes work. Moreover, the share of SNAP adults who are capable of work has grown over time.
Second, compared to other groups of Americans not receiving SNAP—both high- and low-income—SNAP recipients exhibit much worse health outcomes. In 2018 (the most recent year of data), 65 percent of SNAP adults age 50-64 had been diagnosed with diet-related disease, and 42 percent were obese.
The Supreme Court may have decided that President Biden overstepped his authority when he tried to forgive hundreds of billions of dollars of student debt. But even if it had decided that the President needn’t consult Congress to...
We have never really had a genuine universal basic income experiment in the US. One of the most prominent experiments took place in Stockton, California, in February 2019. The program gave 125 of the city’s residents $500 per month. The...
From 1940 to 2019, Americans’ life expectancy rose by almost 16 years, while the share of the U.S. population 65 and older grew from 9.8% to 16.7%. The elderly have progressively more healthy years to work. Most important, increased life...
Proponents of reparations cite past housing discrimination as a primary driver of today’s racial wealth gap. The Federal Housing Administration (FHA) was established in 1934 to provide federal insurance for home loans and it led to a huge...
National test scores plummeted for 13-year-olds, according to new data that shows the single largest drop in math in 50 years and no signs of academic recovery following the disruptions of the pandemic. The average math score is now the...
Unlike the Official Poverty Measure, we include both cash and in-kind programs designed to fight poverty, including the market value of food stamps (now the Supplemental Nutrition Assistance Program, or SNAP), the school lunch program,...
In effect, Congress has decided to penalize marriage most at life stages when children benefit most from the commitment of more than one adult. For young, low-income couples: Earn an additional $10,000, and it’s not uncommon to be left...
First, SNAP participants have very low employment rates, partly because SNAP disincentivizes work. Moreover, the share of SNAP adults who are capable of work has grown over time. Second, compared to other groups of Americans not receiving...