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Donald Trump delivering economic policy speech at the Detroit Economic Club, August 8, 2016

Is the United States headed the way of Latin America in income inequality?

Is the United States headed the way of Latin America in income inequality?

Donald Trump's tax plan appears designed to make income inequality much worse.

Donald Trump delivering economic policy speech at the Detroit Economic C...
Donald Trump delivering economic policy speech at the Detroit Economic Club, August 8, 2016

Income inequality has long been recognized as a serious problem in Latin America, the region of the world where it is the worst. Inequality makes sustainable economic growth, reducing poverty and social cohesion all much more difficult to achieve. And it provides an unspoken justification for crime as a means for the poor to get ahead and to redistribute wealth from the rich.

Of the 35 members in the Organization for Economic Cooperation and Development, the rich countries club, income inequality is the worst in Chile, Mexico and Turkey with the U.S. not far behind at number four. When it comes to accumulated wealth, the United States is the most unequal, rich country according to Fortune magazine.

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Inequality in the U.S. has reached levels that have not been seen since at least the 19 th century and reversing this situation may be impossible. In 2014, the economist, Thomas Piketty wrote in the Financial Times “US inequality may now be so sharp, and the political process so tightly captured by top earners, that necessary reforms will not happen.”

For proof of Piketty’s point one need look only as far as the Republican Party, which seems dedicated to making income inequality worse in America. It is, of course, not described that way. The proposals the party advocates, that will make the problem even greater, are always described as programs to create jobs. Perhaps that’s true if one only looks at the number of valet parking attendants.

During the campaign for the Republican nomination nearly all of the 17 aspiring presidential contenders advocated a flat income tax, or worse, a consumption tax, which is a glorified sales tax. All of these proposals would have exploded the deficit and made income inequality worse.

But that seems to be consistent with the practice of the party that nonetheless advertises itself as the one that is fiscally responsible. President Reagan cut taxes and tripled the national debt. President George W. Bush cut taxes, 38 percent of which went to the richest one percent, and doubled the national debt. And no, the latter did not create jobs and set off an economic boom.

But now we have a Republican nominee who rolled out his economic plan in Detroit recently. Words, when uttered by Donald Trump, seem to lose their meaning as he defines them differently from one day to the next depending on the audience and the occasion. His plan is vague therefore, but contained enough specifics to make clear that it is designed to make income inequality much worse.

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He proposed cutting the number of income tax brackets from seven to three. The problem with the tax code is not the number of brackets. It is the number of deductions, exemptions, loopholes and attempts at social engineering that have made it thicker than a Manhattan phone book. While the exact impact is unclear because of a lack of details, he prosed the following. The marginal tax rate on those making the most income, around a million dollars a year and above, would be cut from 40 percent to 33 percent. On the other hand, those working families struggling to get by on a low five figure income would have their rate raised from ten percent to 12 percent.

He also wants to eliminate completely the inheritance tax, which affects only those two tenths of one percent of estates that exceed $11 million. Since he owes his fortune to inherited wealth, this should not be a surprise. These, and other changes, will cost trillions of dollars, unless of course one believes the fairy tale about all the economic growth and jobs that will be created. The impact of this plan does not even require a back-of-the-napkin calculation and one conservative commentator disliked the overall package so much he referred to it as evil.

Warren Buffett, the billionaire businessman from Omaha, has written about the unfairness of a tax system that allows him to pay a lower tax rate than his secretary. It is clear Trump wants to make that system even more unfair without reducing its complexity. So if you like the income inequality of Latin America, you will love a Trump administration.

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