Steven Rattner

May 15, 2014

Addressing Income Inequality

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Piketty’s Important New Book

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Instant Bestseller

Source: NY Times best sellers list May 11, 2014

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But Weighty and Complex

Trends in Income and Wealthy Inequality

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19.3%

4.1%

18.0%

2.8%

%

Note: Excludes capital gainsSource: Emmanuel Saez, Thomas Piketty

Income Inequality in the US

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Wealth Is More Unequal Than Income

Source: Thomas Piketty

33.8%

17.4%

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Source: Thomas Piketty

The Super Rich Have Gained the Most

Decomposing the Top 1%

1%-0.5% 0.5%-0.1% 0.1%-0.01%

0.01%

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US Leads in Income Inequality

Note: As of 2010Source: Thomas Piketty

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Income Inequality: US vs. Europe

Source: Thomas Piketty

14.7%

17.4%

8.8%6.9%

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Wealth Inequality: US vs. Europe

Source: Thomas Piketty

33.8%

28.0%24.4%20.7%

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State of the Middle Class

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US Middle Class Is Losing Its Lead…

Note: As of 2010Source: NY Times, Luxembourg Income Study Analysis

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…And Is No Longer World’s Richest

Note: As of 2010Source: NY Times, Luxembourg Income Study Analysis

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Causes and Consequences

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Causes

Principal causes:

Technology

Globalization

Secondary causes:

“Winners-take-all” labor markets

Tax policy

Declining unionization

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Skills Matter

Source: Bureau of Labor Statistics

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Impact of Globalization

Source: Bureau of Labor Statistics

Change in Wages by Sector (Jun-09 to Apr-14)

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Lower Tax Rates, Higher Inequality

Note: Change in top income shares and top marginal tax rates since 1960Source: Emmanuel Saez, Thomas Piketty

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US Does Less to Redistribute Income

Source: Janet Gornick, Luxembourg Income Study

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Source: IRS

Average Tax Rate for the Richest 400

19.91%

1997 (Clinton cuts): - Lowered cap gains

tax from 28% to 20%- Lowered 15% tax

bracket to 10% 2003 (Bush cuts): - Lowered cap gains

tax from 20% to 15% - Lowered dividends

tax from 35% to 15%

2001 (Bush cuts): - Lowered tax brackets

from 15%, 28, 31, 36, and 39.6 to 10%, 15, 25, 28, 33, and 35

1993 (Clinton hikes): - Created 36% and

39.6% tax brackets for the richest 1.2%

- Created a 35% tax rate for corporations

Inequality Associated with Immobility

Source: Alan Krueger’s Great Gatsby Curve, Corak (2011), CEA estimates

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But Mobility Has Not Changed Over Time

Source: “Equality of Opportunity Project” by Raj Chetty , Nathaniel Hendren, Patrick Kline, Emmanuel Saez and Nicholas Turner

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Source: Andrew Berg and Jonathan D. Ostry, IMF

More Inequality May Mean Less Growth

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More Inequality May Mean Less Growth

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Source: Andrew Berg and Jonathan D. Ostry, IMF

Source: OECD Income Distribution and Poverty Database, OECD Economic Outlook Database

Or It May Not

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Solutions

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Solutions

Education / retraining / vocational training

More progressive tax policies

Increased Federal investment spending (R&D, infrastructure etc.)

Enhanced social welfare programs

Fair (but free) trade

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To End On An Optimistic Note

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Global Income Growth1988 - 2008

Source: Branko Milanovic. Annotations by James Plunkett.

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