Thursday, April 28, 2011

Globalization in my Neighborhood

Many people are talking about how there is no budget crisis, elites are using a supposed budget crisis to make fundamental cuts in government budgets supported by certain corporate interests. Here, I will not talk about this argument. Instead, I talk about the global trends happening in DC. Sociologists and other social scientists have documented two global trends: 1) the reduction in financial inputs into government budgets since the late 1970s and 2) increasing inequalities both within and between countries (see the work of sociologist Saskia Sassen, on inequalities see the absolutely brilliant work by World Bank economist Branko Milanovic or his video).

In DC, since the late 1970s, there has been a decrease in tax rates and thus a reduction in financial inputs into the city budget. According to a DC Fiscal Policy Institute report, the top DC income tax rate was "reduced from 11 percent to 9.5 percent in the late 1980s, and all tax rates were reduced further after 2000 under the Tax Parity Act." Since that report was written, the top DC income tax rate was further reduced to 8.5%. Property taxes also fell from $1.83 per $100 of assessed value in 1975 to $0.85 now. DC tax rates remain the lowest in the region (see DC FPI chart to the right).

Of course, economic growth could off-set decreasing tax rates. However, the economic recession from December 2007 to June 2009 and the continuing lagging economy has undermined this potential, which means that the DC government is receiving less financial input.

In DC and globally, there has also been increasing inequality. The standard measure of inequality is the Gini coefficient, which ranges from 0 (lowest level of inequality) to 1 (highest level).
  • According to the Census, DC now has the highest Gini coefficient in the US and thus the highest level of inequality nationwide: .532. We also have the most households in the nation making over $200,000 (8.4% of households or 21,194 households).
  • According to the Census, in DC at least in 2006, the share of income going to the poorest 20% of the population was by far the lowest in the country (1.9% as opposed to the national 3.4%) and by far the highest for the wealthiest 20% (56.3% as opposed to 49.9%).
  • For DC, the Gini index increased from 1979 (.450), to 1989 (.492), to 1999 (.549), which meant more inequality. We see a slight decrease from 1999, but the current Gini index of .532 is still well above its pre-1990 level. From the UN data, it seems that this level might be on par with Brazil, Honduras, and Papua New Guinea, countries with the highest levels of inequality in the world. The majority of countries in the world have lower levels than DC.
The economic crisis only exacerbates these inequalities. The decreasing financial inputs to the DC government budget and the upcoming budget cuts will further increase these inequalities. Reducing tax revenues to the DC government increases the wealth of the wealthiest and decreases the wealth, attained through public education and income assistance, to the poorest, thus expanding inequality. These trends are not inevitable. People create policies, jobs, and so on. What can we do to change these global trends in DC?

5 comments:

  1. Just as a reminder: According to the DC Office of the Chief Financial Officer, the top tax bracket starts at $40,001 with a 8.5% tax rate.

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  2. Is it true that 40% of DC residents pay no taxes?

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  3. No, the $40,001+ is the top tax bracket. Here are the DC tax rates:

    1) First $10,000 = 4.0%
    2) $10,000-$40,000 = $400 + 6.0% of excess above $10,000
    3) More than $40,000 = $2,200 + 8.5% of excess above $40,000

    There are some people who avoid some taxes:
    Excludes Social Security income and maximum $3,000 exclusion on military retired pay, pension income, or annuity income from DC or federal government.

    ReplyDelete
  4. Well, shark, you might be talking about something else, such as that maybe 40% of DC residents get out of paying taxes, due to strategic tax planning, working at the World Bank (I don't think they have to pay taxes), being without a job, relying only on social security, etc.

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  5. US World bank employees pay taxes. Most countries don't tax the employees of certain international organizations, but the US does.

    (But, to compensate, most international organizations pay US employees slightly more so that their net pay, after taxes, is the same)

    ReplyDelete

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