When do we get to the point when the obvious--DUH--doesn't come as some surprise or revelation to the elites? Probably never when it comes to inequality because they can't see because they don't live it. Last week, I wrote about a "Duh"--the G20 being told that higher wages will lift the global economy. Today, it's the dopes over at Standard & Poor's who wake up from a slumber--or self-imposed denial.
Meteor Blades already picked up on S&P's discovering that inequality hurts economic growth. Yesterday, S&P followed up on that magical discovery with a new one:
Extending our analysis to public finance, we find that increasing income inequality is undermining the rate of state tax revenue growth. In addition, it is contributing to volatility in tax revenue collections.
And:
Our analysis found a negative relationship between income inequality and state tax revenue tends. When we tested the relationship by tax structure, we found the negative effect was stronger and only statistically significant in the sales tax-reliant states. The findings support our view that rising income inequality contributes to weaker tax revenue growth by undermining the rate of overall economic expansion. [emphasis]
Well, no shit. You mean, people aren't make enough money so they don't pay taxes? And you get paid to come up with that? What a gig.
Ok, I have to cut these guys some slack--they aren't the brightest bulbs in the universe (as Michael Lewis pointed out previously, only the guys who can't get a job on Wall Street go to work for the ratings agencies)
So, this is worth pointing out. Progressive tax systems are better than flat-tax systems...duh again. Or, as the dim bulbs say it:
The results of this analysis found that income inequality for both groups -- the income tax and the sales tax-dependent states -- relates negatively with tax revenue growth. However, the negative effect was stronger in the sales tax-reliant states than it was for the income tax-dependent states. In addition, the relationship was only statistically significant at the one percent level for the sales tax-reliant states. This suggests that through a progressive tax structure, it's possible to counteract much of the depressing effect inequality has on tax revenue growth rates. In contrast, the strong negative relationship we found in the sales tax-dependent states reflects how rising income inequality contributes to slower economic growth. And absent the progressivity found in most of the income-tax states' tax structures, the slower economic growth related to inequality gets transmitted to the sales tax-reliant states' budgets as slower tax-revenue growth.[emphasis added]
And:
In a setting of rising income inequality, the move toward more progressive tax rates may help states generate faster tax revenue growth than would flatter tax regimes. In California, the Legislative Analyst's Office (LAO) has indicated as much. Since 1993, the top percentile's inflation-adjusted incomes have increased by 75%. Incomes of the bottom four quintiles, on the other hand, all declined, between 2.9% to 9.3% during this span. California's revenue dependence has mirrored these income trends, with an increasing share of its income tax collections coming from the high-income taxpayers. In 2012, for example, taxpayers with incomes in the top percentile paid almost 51% of the state's personal income tax revenue, up from 33% in 1993.(9) Thanks to the combination of a progressive income tax schedule and divergent income trends, the state's finances have come to rely more heavily on high-income taxpayers. [empahsis added]
Obviously, no one wants to avoid ending the inequality we see by
demanding higher minimum wages and higher basic wages. But, progressive taxation is a better way to combat inequality than the more regressive sales tax...again, duh...but it helps when these guys say the obvious.
OK, now back to our regularly scheduled life in the real world.