Tax code progressivity isn't everything. But the top line matters

"Don't soak the rich," Edward D. Kleinbard admonishes U.S. policymakers in today's Times. Countries with less progressive tax systems than the U.S., which tax everyone more and spend more on social services and other public goods, do a better job of reducing inequality (and fostering citizens' welfare) than the U.S. does. Lower income citizens get disproportionately more value from government spending, and an adequate tax base must be broad-based.

I take the point -- made with equal force two days ago by Vox's Cathie Jo Martin and Alexander Hertel-Fernandez [update: Mike Konczal and Matt Bruenig both demonstrate the alleged US progressivity is an illusion -- see below]. But there's a counterpoint. The U.S. may have a more progressive tax system and skimpier social welfare than the wealthy countries of Europe -- that's a longstanding reality. But all these countries have moved in the same direction over the past thirty years, and all have suffered widening income inequality. Here's Thomas Piketty's explanation:

Piketty: U.S. sold its middle class birthright for a mess of Reaganite pottage

The main thesis of Thomas Piketty's Capital in the Twenty-First Century is that the accumulation of wealth in the hands of a few is subject to a kind of gravitational pull. That's what the long-term data tells Piketty. But there's a second core thesis: that gravitational pull can be countered by social policy. Markets, he asserts, are a social construct: prices and wages do not magically align themselves with intrinsic worth.

In practice, the invisible hand does not exist, any more than “pure and perfect” competition does, and the market is always embodied in specific institutions such as corporate hierarchies and compensation committees (p. 332).

In Chapter 8, Piketty traces "the explosion of inequality in the U.S. after 1980." In Chapter 9, he homes in on the explosion in compensation of top executives in the U.S. -- mirrored to a somewhat lesser extent, throughout the Anglosphere, and to a lesser but still pronounced degree, through Continental Europe, Japan, and emerging economies:

The central fact is that in all the wealthy countries, including continental Europe and Japan, the top thousandth enjoyed spectacular increases in purchasing power in 1990– 2010, while the average person’s purchasing power stagnated (p. 320).

Political polarization correlates with rising inequality

Thomas E. Mann, arguing that U.S. political dysfunction is more extreme than political scientists are willing to acknowledge, asserts (and demonstrates) that paralyzing party polarization is asymmetric:

That mismatch between parties and governing institutions is exacerbated by the fact that the polarization is asymmetric. Republicans have become a radical insurgency—ideologically extreme, contemptuous of the inherited policy regime, scornful of compromise, unpersuaded by conventional understanding of facts, evidence, and science; and dismissive of the legitimacy of its political opposition. The evidence of this asymmetry is overwhelming.

The time frame for this accelerating dysfunction is approxmately 1980 - present:

And Norm Ornstein and I in It’s Even Worse Than It Looks document how the asymmetry developed from Newt Gingrich in the 1980s to the present. Asymmetric polarization has found its way to the public: Republican Party voters are more skewed to their ideological pole than Democratic Party voters are to theirs.

Serendipity: continuing my slow plow through Thomas Piketty's Capital in the Twenty-First Century this morning,  I came across the foundational fact base: