Those at the top include a disproportionate number of monopolists who increase their income by restricting production and engaging in anti-competitive practices; chief executive officers who exploit deficiencies in corporate governance laws to grab a larger share of corporate revenues for themselves (leaving less for workers); and bankers who have engaged in predatory lending and abusive credit-card practices (often targeting poor and middle-class households). It is perhaps no accident that rent-seeking and inequality have increased as top tax rates have fallen, regulations have been eviscerated and enforcement of existing rules has been weakened: The opportunity and returns from rent-seeking have increased.
Today, a deficiency of aggregate demand afflicts almost all advanced countries, leading to high unemployment, lower wages, greater inequality and — coming full, vicious circle — constrained consumption. There is now a growing recognition of the link between inequality and economic instability and weakness.
There is another vicious circle: Economic inequality translates into political inequality, which in turn reinforces the former, including through a tax system that allows people like Romney — who insists that he has been subject to an income tax rate of “at least 13 percent” for the past 10 years — not to pay their fair share. The resulting economic inequality — a result of politics as much as market forces — contributes to today’s overall economic weakness.
Romney may not be a tax evader; only a thorough investigation by the US Internal Revenue Service could reach that conclusion. However, given that the top US marginal income tax rate is 35 percent, he certainly is a tax avoider on a grand scale. And, of course, the problem is not just Romney; writ large, his level of tax avoidance makes it difficult to finance the public goods without which a modern economy cannot flourish.
However, even more important, tax avoidance on Romney’s scale undermines belief in the system’s fundamental fairness, and thus weakens the bonds that hold a society together.
Joseph Stiglitz, a Nobel laureate in economics, is a professor at Columbia University.
Copyright: Project Syndicate