Synopsis: A short timeline and discussion of income inequality.
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Discussion:
This article discusses the historical trends of income inequality in different western countries, as well as the causes of the change in trends.
In the 1920s, the countries whose citizens were mostly immigrants had less inequality in income (perhaps because they were all equally poor?). Such countries included the US., Australia and Canada. Conversely, countries like Germany, whose citizens in general were not immigrants, had higher levels of inequality.
During the next 50 years, the share of the top 1 percent pretty much halved globally, and the share of the top 0.1 percent fell even more. This is because governments introduced harsh progressive taxes to encourage equality.
In the 1970s, Germany still had usually high inequality in comparison to other countries. This could be because entrepreneurs were well remunerated, while working-class citizens were not.
Post 1970, inequality rose very sharply worldwide. In France and Germany, the share of the top 1 percent and the top 0.1 percent stayed stagnant. In the US, it rose to levels higher than in the 1920s. In the UK, it rose as well, though it did not reach the level of the 1920s.
The reasons why it rose so sharply in the US, and the UK to a lesser extent, are:
1) Corporate executives were remunerated highly, higher than working-class citizens.
2) Doctors and lawyers are paid very highly. In other countries, public healthcare and limited role for litigation prevented this from happening.
3) Finance professionals are experiencing an increase in the top 1 percent (from 8% to 14%) and in the top 0.1 percent (from 11% to 18%). Countries resisting what the author calls ‘financialisation’, such as France and Germany, are not experiencing such drastic increases in inequality.
Key terms:
A progressive tax is, according to Wikipedia, where “the tax rate increases as the taxable base amount increases”. In other words, as the income of a person increases, they pay a higher share of income as taxes. The most common example of a progressive tax is tax on income. The reason why progressive taxes are “forces of equalization”, as the author says, is because in real terms, the amount being taken from a person for taxes increases as their income does.
There are two other main types of taxes:
1) Proportional tax, where the tax rate is stagnant regardless of the taxable base. An example of this is a poll tax, as the tax rate is fixed.
2) Regressive tax, where the tax rate increases as the taxable base decreases. An example of this is a sin tax, such as on cigarettes. The tax is usually a flat rate. For example, if the tax on a pack of cigarettes is $1, for a person earning $100, this represents 1% of his income, but for a person earning $200, this represents only 0.5% of his income.
Context:
Income should not be confused with wealth, which is accumulated assets. This article specifically talks about income inequality, not wealth inequality. In other words, income is a flow concept and wealth is a stock concept. For example, you could be wealthy with many inherited assets, but not have year-to-year income. Conversely, you could have a high yearly income but not have much of accumulated assets.
This article discusses the historical trends of income inequality in different western countries, as well as the causes of the change in trends.
In the 1920s, the countries whose citizens were mostly immigrants had less inequality in income (perhaps because they were all equally poor?). Such countries included the US., Australia and Canada. Conversely, countries like Germany, whose citizens in general were not immigrants, had higher levels of inequality.
During the next 50 years, the share of the top 1 percent pretty much halved globally, and the share of the top 0.1 percent fell even more. This is because governments introduced harsh progressive taxes to encourage equality.
In the 1970s, Germany still had usually high inequality in comparison to other countries. This could be because entrepreneurs were well remunerated, while working-class citizens were not.
Post 1970, inequality rose very sharply worldwide. In France and Germany, the share of the top 1 percent and the top 0.1 percent stayed stagnant. In the US, it rose to levels higher than in the 1920s. In the UK, it rose as well, though it did not reach the level of the 1920s.
The reasons why it rose so sharply in the US, and the UK to a lesser extent, are:
1) Corporate executives were remunerated highly, higher than working-class citizens.
2) Doctors and lawyers are paid very highly. In other countries, public healthcare and limited role for litigation prevented this from happening.
3) Finance professionals are experiencing an increase in the top 1 percent (from 8% to 14%) and in the top 0.1 percent (from 11% to 18%). Countries resisting what the author calls ‘financialisation’, such as France and Germany, are not experiencing such drastic increases in inequality.
Key terms:
A progressive tax is, according to Wikipedia, where “the tax rate increases as the taxable base amount increases”. In other words, as the income of a person increases, they pay a higher share of income as taxes. The most common example of a progressive tax is tax on income. The reason why progressive taxes are “forces of equalization”, as the author says, is because in real terms, the amount being taken from a person for taxes increases as their income does.
There are two other main types of taxes:
1) Proportional tax, where the tax rate is stagnant regardless of the taxable base. An example of this is a poll tax, as the tax rate is fixed.
2) Regressive tax, where the tax rate increases as the taxable base decreases. An example of this is a sin tax, such as on cigarettes. The tax is usually a flat rate. For example, if the tax on a pack of cigarettes is $1, for a person earning $100, this represents 1% of his income, but for a person earning $200, this represents only 0.5% of his income.
Context:
Income should not be confused with wealth, which is accumulated assets. This article specifically talks about income inequality, not wealth inequality. In other words, income is a flow concept and wealth is a stock concept. For example, you could be wealthy with many inherited assets, but not have year-to-year income. Conversely, you could have a high yearly income but not have much of accumulated assets.
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