How to halt the expansion of inequality in the U.S.

Former Supreme Court justice Louis D. Brandeis once said, “We may have democracy, or we may have wealth concentrated in the hands of a few, but we cannot have both.”

Professors Ian Ayres and Aaron S. Edlin say we have reached the Brandeis tipping point. Yet even while acknowledging this level of inequality undermines democracy, rather than try to reverse the trend, they propose a mechanism that would simply cap it. I guess this falls under the category, better than nothing.

What we call the Brandeis Ratio — the ratio of the average income of the nation’s richest 1 percent to the median household income — has skyrocketed since Ronald Reagan took office. In 1980 the average 1-percenter made 12.5 times the median income, but in 2006 (the latest year for which data is available) the average income of our richest 1 percent was a whopping 36 times greater than that of the median household.

Brandeis understood that at some point the concentration of economic power could undermine the democratic requisite of dispersed political power. This concern looms large in today’s America, where billionaires are allowed to spend unlimited amounts of money on their own campaigns or expressly advocating the election of others.

We believe that we have reached the Brandeis tipping point. It would be bad for our democracy if 1-percenters started making 40 or 50 times as much as the median American.

Enough is enough. Congress should reform our tax law to put the brakes on further inequality. Specifically, we propose an automatic extra tax on the income of the top 1 percent of earners — a tax that would limit the after-tax incomes of this club to 36 times the median household income.

Importantly, our Brandeis tax does not target excessive income per se; it only caps inequality. Billionaires could double their current income without the tax kicking in — as long as the median income also doubles. The sky is the limit for the rich as long as the “rising tide lifts all boats.” Indeed, the tax gives job creators an extra reason to make sure that corporate wealth does in fact trickle down.

The New York Times reports on the property market for those with ‘infinite money’: Pierre Buljan guided his black Mercedes S.U.V. around the winding roads of the Hillsborough hills and into Atherton, where the mansions of Silicon Valley technology barons hide behind thick stone walls, wrought-iron gates and tall, manicured hedges.

“These people have essentially infinite money,” said Mr. Buljan, who has been a Realtor on the Peninsula for more than 30 years. He pointed at a sloping four-acre property that included a large redwood grove with a private creek.

“If someone falls in love with a property like this,” he said, “the price doesn’t matter.”

Everywhere Mr. Buljan turned, a historic transition was under way. A generation ago, many of these properties were second homes for San Francisco’s elite families. These days, most are being bought, for cash, by international tycoons or the youthful leaders of local technology companies.

While the wider Bay Area has suffered, along with the rest of the country, with falling property values and rising foreclosures, the luxury housing market has remained robust, analysts said. That is especially true in Silicon Valley, where an arms race for talent among emerging social networking companies has raised salaries for executives and engineers, and a resurgent market for initial public stock offerings is creating hundreds of new millionaires.

Some of the sales are eye-popping. In March, the Russian billionaire Yuri Milner, an investor in Facebook, Groupon and Zynga, bought a French-style chateau in Los Altos Hills for a reported $100 million. Some buyers have hidden their identities behind companies.

In September, an Atherton estate formerly owned by the great-grandniece of Levi Strauss sold for $53 million, while the home of Sue Burns, a major investor in the San Francisco Giants, was sold for $20 million by her estate.

“It’s going to take a while for the wider economy to recover, but there are enough people to make a difference at the high end of the housing market,” keeping demand high, said Steve Levy, director of the Center for Continuing Study of the California Economy, a think tank in Palo Alto, where the median single-family home price last week was $1,838,750.

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2 thoughts on “How to halt the expansion of inequality in the U.S.

  1. MSE

    For those who can’t do the math, the ever-so-enlightened Ayres & Edlin are (without having the guts to say so explicitly) calling for a 100% marginal income tax rate on those who make more money than they approve of–it’s for the greater good, you know. . .

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