Academic journal article Global Economic Observer

For Joseph Stiglitz the Great Social Division in USA Is a Vital Issue to Be Urgently Resolved

Academic journal article Global Economic Observer

For Joseph Stiglitz the Great Social Division in USA Is a Vital Issue to Be Urgently Resolved

Article excerpt

FOR JOSEPH STIGLITZ THE GREAT SOCIAL DIVISION IN USA IS A VITAL ISSUE TO BE URGENTLY RESOLVED (Joseph Stiglitz: The Great Divide: Unequal Societies and What We Can Do About Them, Publica, Bucharest, 2015) Part IV, V, VI, VII, VIII

2. The causes and consequences of social inequality

Why has social inequality increased so much in the last 35 years? One explanation lies in the actions of hunters for economic rent: bankers, corporate managers, brokers and other market actors, like companies with a dominant market position. Social inequality is transmitted from one generation to the other, it is a cause and also a consequence of income inequality. America has increasingly become economically segregated and has done almost nothing compared to other developed countries to improve the situation. Stiglitz has focused on two issues: the protection granted to corporations by the state and US tax system. Saving banks from bankruptcy with public money is called socialism for the rich Americans. The tax system is unfair, distorting the economy and leading to high levels of inequality. Stiglitz talks about a tax system calibrated against 99% of population as 1% (the very rich) does not pay enough taxes. It was Warren Buffett who said it's unfair that he paid less taxes than his secretary, certainly relative to his revenues, consisting primarily of capital gains. Usually, uncollected capital gains, some simply fabulous, are not charged at all.

As regards big companies, avoiding paying taxes, as does General Electric (GE), heavily incriminated by Bernie Sanders recently, it seems to become a widespread sport in U.S and in the EU. Many large corporations have transferred their profits from developed and emerging countries to offshore tax heavens. Fortunately, a very responsible organization enlisting the brightest analysts in the world took the initiative to combat this awful evasion, and this is the OECD. Stiglitz makes reference to Mitt Romney, who, while saying that 47% of Americans do not pay their taxes and are parasites, kept his money in the Cayman Islands.

Very rich bankers were protected by the state through bail out system and the Obama Administration has introduced a new concept favoring large corporations: too big to be financially restructured, apparently to not panic the markets. A part of public bail out money was used for paying huge bonuses and dividends for bank managers. Instead of restructuring big banks and reforming their shareholding and management system the state allowed them to continue to do what they wanted with the public money. This new form of capitalism in which the losses are nationalized and the profits are privatized is doomed to failure. This form of oligarchic capitalism can be met not only in the US but also in many other countries, including Romania, and some scholars called it socialism with American characteristics or socialism for the rich people, but obviously it amounts to welfare granted to corporations to the detriment of citizens. For instance, in Romania, the interests of the corporations are the only ones that count, while those of ordinary citizens do not matter at all.

If the taxes are the price for a civilized society it is hard to understand why many rich people and many corporations not pay enough taxes according to their level of income and profit. To the lack of real progressive taxation one may also add the proliferation of tax havens that have multiplied rapidly as the amounts deposited there for tax avoidance or tax evasion increased dramatically. Over the last 30 years, fiscal equity has significantly worsened in U.S, with the 1% top group paying only 20% of all taxes in 2010, while earning about as much. This 1% group owns 40% of the nation's wealth. In U.S. the maximum rate of income tax (39.6%) only applies to an income level above $ 400,000 per year. As income and social inequality have considerably increased over the last decades, any state or country may use the fiscal code for income and wealth distribution. …

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