Bailout

Why the plutocrats will return

By Felix Salmon

Is the US government powerless to prevent the return of the plutocrats? Or does it actually, secretly, need the plutocrats to return? Here’s Tim Geithner, today:

“You cannot address those long-term deficits, you cannot put the government of the United States in a position that we can go back to living within our means, unless you repair the damage done to this economy and to its revenue base.”

Translation: we need to return to our bubble-era levels of income.

It’s worth remembering that income for America is the same thing as income for Americans: 81% of federal revenues come from income and payroll taxes.

Remember too that when you have a progressive tax system, especially when there are surcharges on people making seven-figure incomes, you also have a system where for any given level of national income, the greater the inequality, the greater the government’s tax revenues. And indeed federal revenues have been rising faster than median wages for decades now, thanks to the rich getting ever richer.

Given the government’s insatiable appetite for cash, it’s only natural that it would prefer to tax plutocrats, spending some of that money on poorer Americans, rather than move to a world where poorer Americans earn more (but still don’t pay that much in taxes), and the plutocrats earn less, depriving the national fisc of untold billions in revenue.

The government’s interests, then, are naturally aligned with those of the plutocrats — and when that happens, the chances of change naturally drop to zero.

Update: Kevin Drum does the math, and concludes that “the federal government doesn’t have much of an incentive to maintain lots of income inequality”.

Full post as published by Macroprudential on December 03, 2009 (boomark / email).