Monday, June 18, 2012

Inequality, Fairness, and Citizenship Renouncers

Inequality is increasingly under discussion. Some take a very neo-classical, economistic, approach, and do not see why it is an issue. They think the distribution of talent and normal functioning of the economy will create inequality and we should not tamper with it for political reasons. They fail to see how politics accounts a great deal of inequality in the first place.  Joseph Stiglitz is a Nobel Prize winning economist who does see the political nature of inequality. He says he learned to see the unfairness of inequality growing up in Gary, Indiana, where he saw racism and cyclical unemployment lead to unfair results. He was recently interviewed on NPR's Fresh Air re his new book The Price of Inequality. He said:

The percentage of the population falling below the poverty level has increased dramatically in the last few years, and the percentage of income of those at the very top, the 1%, is now about 20%, much higher than it was 2 or 3 decades ago. I think most Americans understand that our system today isn’t fair. One of the roles of government is to make our system fair.  And one part of fairness is that everybody ought to pay a fair share of their income in taxes. A basic premise I think that most Americans believe is that if your income is very, very high, you should pay at least the same percentage of your income in taxes as somebody whose income is lower. Most Americans, I think, would not agree with the view that speculators ought to be taxed at half the rate of those who work for an income.
Now, conservatives have pointed out that how many people fall under the poverty line is determined at least in part by where you draw the line. True enough. But no one seriously questions the fact that there has been growing inequality. There are questions about why this is so, and there are questions about whether anything can or should be done about it.  Unfortunately, many economists think inequality is a "natural" fact and that nothing can change it.

Stiglitz is not right that most Americans believe in a sense of fairness where everyone pays at least the same percentage of their income in tax. Neoliberalism has changed Americans' idea of fairness. I have a family friend in Hong Kong who works in venture capital. His family has been fairly liberal; they were fairly mainstream East Coast Democrats. From what I gather, he and his parents supported Clinton, Gore, and Obama. But in a conversation about a year ago, he startled me by arguing that it was not fair that he had to pay so much in taxes. This is a common theme among Amercans abroad, since only the USA and Liberia tax their nationals who live abroad. But as I discussed this with him, I discovered that he had a bigger gripe. He did not think it fair that he even pay the same percentage of his salary in taxes as everyone else. He pointed out that the cost of him uses the roads, the services of the State Department, the benefits of regulations, and all other government services did not increase just because he made more money. He basically was arguing for a "poll tax": a tax per person, with every person paying the same amount, regardless of income.

I think people like him get upset at how much they pay: if you make $2 million per year, and pay at the maximum rate of about 35%, you are paying about $700,000 in taxes. And that sticks in these people's craw. I tried in vain to tell him that he benefited from the economic system, that many services (like FBI protection against kidnapping) protect the rich more than the poor, and that should be happy to pay more to assure the survival of an economic system that benefits him much more than most ordinary workers. He would have none of it. In fact, like many high flying investors, he's begun the process of renouncing his US citizenship. The Wall Street Journal reports that last year, 1,800 Americans renounced their US citizenship.

The whole issue of citizenship renunciation makes me feel uncomfortable.On one hand, it is a bit unseemly to change citizenship based on relatively short-term financial considerations (especially if, given the current worldwide economic problems, security should deteriorate in certain parts of the world--renouncers need to remember they cannot move back to the US later). On the other hand, the nationalistic populism that criticizes renouncers is also unseemly. If people don't want to play in your sandlot, let them go somewhere else. My uncles brought the Bosco clan to the US because of the great economic opportunities it offered. From a certain point of view, they were "renouncers" of Italian citizenship, and during Fascism, my father could not go back to Italy because he was viewed as a sort of traitor (he would have been inscribed into the Italian army). The US is created by people who abandoned their previous nationality, so it is a bit odd to criticize some for abandoning their US citizenship, though I suppose that is precisely what makes it sensitive in the US.

But what I find most disturbing is the fact that people like my friend, a perfectly decent person, now feels that he should not pay any more in taxes, in dollar terms, than a mechanic or assembly line worker. Stiglitz' idea of fairness has become "old fashioned" in the neo-liberal world we live in today. If the rich even don't agree to pay the same percentage tax as the 99%, let along a higher percentage to reflect their greater ability to pay, how can we come to a consensus on how to reduce the government deficits?  How can our notions of fairness have changed so much in just one generation?

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