Can You Manage Inequality?

This is an alternative proposal by Ian Ayres, Law Professor at Yale and Aaron S. Edlin, Economics and Law Professor at UC Berkeley. In 1980 the richest 1% of Americans made 9.1% of the nation’s pre-tax income. By 2006, that share had risen to 18.8%. Focusing on this increase the two professors suggested that if one looks at what is known as the Brandeis ratio (the average income of the nation’s 1% to median household income), in 1980 this was 12.5 meaning that the average 1-percenter made 12.5 more than the median income. By 2006 this grew to 36.

Here is where the gentlemen would like the ratio to top out at. The proposal is an automatic tax on the 1% should the ratio rise above 36 moving forward. What the government would do with that revenue is unclear. But the thought is if billionaires knew they would be taxed additionally if the inequality gap continued to widen, they would make sure corporate wealth trickles down sufficiently to the middle and lower classes in order to keep the ratio constant at 36 thus avoiding the additional tax. Feasible or bad policy?

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