About one percent of Chinese households own one-third of the nation’s wealth, raising concerns about income inequality in the world’s most populous country, according to a study by Peking University.
Chinese households on average had a net worth of 439,000 yuan (about $71,000) in 2012, up 17 percent from the 2010 level, the university’s Institute of Social Science Survey said Friday in its latest report on China’s livelihood development.
However, income inequality rose rapidly during the period, the report said, as the top one percent of Chinese households held more than one-third of the nation’s wealth, while 25 percent of households at the bottom owned only 10 percent of the country’s property value.
The researchers based their main analysis on 2012 data from the China Family Panel Studies, a large-scale survey project conducted by the institute.
The report showed about 74.7 percent of Chinese household wealth came from owning real estate.

Kemal Dervis calls for strong policies to combat income inequality.  Without potent policies aimed at counteracting these trends, inequality will almost certainly continue to rise in the coming years. Restoring some balance to the income distribution and encouraging social mobility, while strengthening incentives for innovation and growth, will be among the most important – and formidable – challenges of the twenty-first century.   Inequality

Apparently one big problem going forward is that very wealthy men and very wealthy women are marrying each other.

Steven Hansen writes: Economic theory is interesting. There never has been “scientific” proof documenting how any theory performs against the wide range of economic dynamics because there is no experimental control sample for comparison. Like most of us, I have opinions (based on theory) but I do not confuse opinions with data or facts.

This past week, everyone’s “love him or hate him” economist Paul Krugman wrote:

Two years ago Kansas embarked on a remarkable fiscal experiment: It sharply slashed income taxes without any clear idea of what would replace the lost revenue. Sam Brownback, the governor, proposed the legislation — in percentage terms, the largest tax cut in one year any state has ever enacted — in close consultation with the economist Arthur Laffer. And Mr. Brownback predicted that the cuts would jump-start an economic boom — “Look out, Texas,” he proclaimed.

But Kansas isn’t booming — in fact, its economy is lagging both neighboring states and America as a whole. Meanwhile, the state’s budget has plunged deep into deficit, provoking a Moody’s downgrade of its debt.

Yah, Kansas is not booming but consider the following and let’s see where these items might take us:

• the debt in Kansas is not much worse than any other states.
• more than two states bordered Kansas;
• how fast does any economic theory work? Should it be judged in the short, medium or long term?
• raising income taxes removes money from consumers.

There is no question that based on employment, Kansas is doing worse than its neighbors (about the same as Missouri) and the average for Kansas and all its neighbors looks to be slightly below the national average. Remember that employment is a lagging indicator of economic growth.

GDP growth for Kansas appears also be very near the national average – but GDP growth is less than 3 of its 4 neighbors.

If raising taxes were an answer – the USA economy should be flying. You cannot condemn a single element of an economy without examining all elements. I am not for or against raising taxes per se on a state level. My opinion would be conditional when judged against all the other economic dynamics.

Consider also that the Federal Government has different monetary dynamics than the states (being a sovereign monetary issuer) – and the examples given in Professor Krugman’s oped were based on Federal Government experience.

The individual states in America, like countries in the EU,  are potential economic laboratories. States should be encouraged to leave the trodden trail and experiment. Most experiments end in failure, but without failures – our understanding of economic dynamics is not enriched. Professor Krugman is the mouthpiece for liberal partisan politics, and partisan politics have no place in “factual” economic discussions.

his conclusions can not be, write Dan Lieberman.  Capitalism is doomed if the spread between the very, very wealthy and the rest of us is too great.

Questioning the statistics in Thomas Piketty’s best selling book with intent to undermine his thesis, is futile. Even if Piketty’s alert to the economics community that returns on investment have exceeded the real growth of wages and output, which means that the stock of capital is rising faster than overall output, may not be exact, the criticism has neglected to upset the conclusion – severe income inequality and inequitable wealth distribution doom the capitalist system to an eventual collapse, and a more narrow distribution keeps it going.    Piketty’s Statistics

Andrew SHeng nad Xiao Geng write:

In order to ensure long-term social stability, China must promote inclusive wealth creation, for example, by establishing strong incentives for innovation. The rise of high-tech companies like Huawei, Tencent, and Alibaba is a step in the right direction, though the fact that the most successful Chinese tech companies are listed overseas, and are thus not available to mainland investors, is problematic. Regulations and exchange controls prevent the retail sector from benefiting from new wealth creation.
Another challenge lies in the decline in the Shanghai Stock Exchange Composite Index from its 2007 peak of 6,000 to around 2,000 today. With financial assets failing to bring adequate dividends or capital appreciation, many investors have switched to real estate as a hedge against inflation.
China’s leaders are already working to guide the transition to a growth model driven by domestic consumption and higher-value-added production. But the challenge is more complex than that. The new model – with the help of market forces, where and when appropriate – seeks to ensure that wealth is created sustainably and shared widely. To succeed would fulfill the Chinese Dream. Failure would mean that inequality would continue to fester worldwide.   Piketty in China

Curiously in the US, many conservatives think so.  This makes an articulate legislator like Elizabeth Warren attractive to  people of all political persuasions.  Has the left, right divide lost its meaning in economic terms?

According to a new Pew survey, 62 percent of Americans think that the economic system unfairly favors the powerful, and 78 percent think that too much power is concentrated in too few companies. 69 percent of young conservative-leaning voters and 48 percent of the most conservative voters agree that the system favors the powerful, according to Pew.

Our analyst and commentator Lloyd McAulay writes:  Discussion of the increase in economic inequality became noticeably more frequent recently. The best selling Thomas Piketty book on “Capital” has prompted much of the discussion. A main technique for reducing inequality has been through the tax code. This article discusses the personal income tax code with reference to the United States. Other articles will discuss the business tax code, the inheritance tax, an asset tax (which is proposed by Piketty) and non-tax matters, such as the minimum wage, relevant to income inequality. I do not know enough to be sure of the thresholds or even of the rates set forth in the following. But with that caveat, I can structure an approach and assume thresholds. The biggest unknown is the amount of income that is now free of taxes or , like capital gains, subject to reduced tax rates.

1. A No Tax Threshold of $60K. I suggest a family income of up to $60,000.00 as the starting point for income tax. This means no income tax on the first $60K of any family’s income. I think in our amazingly prosperous economy, that those who are in the lower half of income should pay no income tax. Remember that they pay Social Security, sales tax and those taxes, such as corporate and real estate, that are part of the cost of doing business and thus incorporated in the price of goods and services.  My $60K suggestion recognizes that median family income is about $55K. I up that threshold by about 10% to cover the fact that I propose no deductions for anything, including charitable contributions, mortgage interest, local income tax, and medical expenses. The $60K threshold might be affected by what is collected by items 2 and 3 below. We should consider a single rate structure for individuals and do away with head of household and married filing jointly forms.  This would reduce the threshold under which no taxes are paid.

2. All Income Fully Taxable. This is just what it says. I urge no special treatment for dividends, capital gains, local bond interest, inheritance and other so-called “unearned” income. The $60K threshold means some unearned income would not be taxed anyhow. How much tax this approach produces affects the threshold and the tax rate.

This unearned income should be subject to withholding. Since I treat dividends as fully taxable personal income, I would treat them as a corporate expense.

3. No Deductions. The $60K can be looked at as including a modest standard deduction since median family income is probably under $55K. Eliminating deductions is tough to achieve politically. This proposal eliminates a vast amount
of so called tax compliance. There will be no deduction for charitable giving, mortgage interest or medical care. I have read that there are 300 items now covered by deductions and special tax treatment.

4. No Charitable Deductions. One advantage is that it gets the government out of the business of deciding what is a charity.  Why is the Metropolitan Museum a charity and Bartlett Farms not? Why is it a charitable act for MOMA to show films and it is not for Loews to show films?

5. Inherited Income. All inherited income should be treated like any other income and taxed at the rate which applies to the individual getting that income. This means no separate estate tax. Briefly: employ an inheritance tax and not an estate tax.

6. A “sort of” Flat Rate. On income over $60 thousand and up to about $2 million, I suggest a flat rate at an amount to cover tax requirements. I wildly guess that this will mean a rate below 40%. It is a function of how much is pulled in by taxing all income. There may be some trade-off between threshold and this rate. Because the
threshold is high, this kind of flat rate becomes what is called “progressive”. (i.e. mathematically progressive).  If the “flat” rate is 40%, a person earning $120K, would pay $24K (0.4 times 60K); an overall rate of 20%.

7. A Millionaire Rate. The amount over $2 million, could be taxed at a maximum feasible rate. Going over 50% probably results in too much tax avoidance. This is hard to gauge. The federal rate should take into account state and city rates so that the tax payer’s top dollar rate for all three income taxes will not exceed 50%.

8. Increase the Ceiling for paying S.S. Tax. The S.S. tax and Medicare tax should extend to all income up to where the millionaire rate kicks in. These taxes are essentially a flat tax rate component of income tax.

9. Negative Income Tax. Keep this tax for the lowest earned-income group. It is also called the earned income tax credit.

The above would reduce the tax code enormously . It would reduce efforts now made that distort economic decisions in order to gain legal tax advantage.

Policy Considerations that are relevant to the above:

1. Those who benefit most should pay for that governance structure which protects the benefit.

2. There is an aesthetic, ethical and even moral impulse against great inequality.

3. It is efficient and thus good for the economy to have a simple system.

4. It aids public acceptance for the system to be simple. I suspect that the personal income tax code could be written in a few pages.

5. It rewards work by low income workers.