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Occupy This

So, what should be occupied next? No doubt, the Occupy Wall Street protesters were right to target the financial industry first. Soaring Wall Street pay has been a key force behind America's income disparities over the past three decades, and banks have yet to be held accountable for the destruction they wrought in recent years.

india Updated: Nov 05, 2011 20:32 IST

So, what should be occupied next? No doubt, the Occupy Wall Street protesters were right to target the financial industry first. Soaring Wall Street pay has been a key force behind America's income disparities over the past three decades, and banks have yet to be held accountable for the destruction they wrought in recent years.

But the movement needs some new destinations. It's getting cold in Zuccotti Park, and the authorities in other Occupy cities are starting to run out of patience. Besides, if you're really serious about addressing income inequality and economic injustice in America, there are other institutions and figures worth challenging. Their roles in creating the gaping divides in our economy in which the top 1 percent of taxpayers take home a quarter of the nation's income prove that inequality is not just a result of abstract trends of globalisation and technology. No, wide inequality in this country has been driven in large part by specific actions, or failures to act, by people and organizations in positions of authority.

Protesters need no introduction to Wall Street, let alone the Capitol or the White House. But here, in no particular order, are other culprits in need of occupation.

Occupy, Bill Clinton
Hold on, you might say. Didn't President Clinton preside over our last stretch of solid economic growth? And didn't his budget deal of 1993 raise income taxes on the wealthy? Yes, and yes, but Clinton also signed off on a giant windfall for affluent Americans - the 1997 reduction in the capital gains rate, the tax paid on profits from the sale of assets such as stocks or real estate.

President Ronald Reagan's 1986 tax overhaul raised the capital gains rate from 20 percent to 28 percent, equalizing it with the new top tax rate for earned income. This was a progressive move, given that capital gains are claimed disproportionately by the very rich; half of all capital gains have gone to the top 0.1 percent of earners over the past 20 years.

But early in his second term, Clinton cut a deal to cut the rate from 28 percent to 20 percent in exchange for congressional Republicans' approval of college tax credits. With Clinton having signed off on that, it was easier for his successor, George W Bush, to drive the rate even lower, to 15 percent.

The low capital gains rate explains why billionaire investor Warren Buffett was taxed at only 17 percent last year and why millionaires paid an effective tax rate of 22.1 percent in 2007, down from 30.8 percent in 1996. The low capital gains rate also gave rise to the "hedge fund loophole," under which investment managers classify their pay as capital gains, thus having their income taxed at a mere 15 percent.

"By far, the largest contributor to the reduced progressivity of the US tax system is the change in the capital gains rate. It is reason number one, number two and number three," said Marty Sullivan, an economist with Tax Analysts.

Is it fair to target someone for deeds long past? Well, Clinton hasn't exactly been earning forgiveness. In a recent interview by the conservative network Newsmax about Obama's plan to raise taxes on the wealthy, Clinton gave it a cool review, which promptly showed up in ads attacking the proposal.

So occupy away. It's up to protesters to decide what's most convenient: the Clinton Foundation offices in New York City (which did not respond to a request for comment), Clinton's big spread in suburban Chappaqua or the Clinton presidential library in Little Rock.

Occupy Harvard
The Occupy Wall Street protesters say that one of their grievances is the towering student loan debt carried by underemployed college graduates, an average of $25,250 for the Class of 2010. If so, the protesters ought to take their case directly to the universities and some are starting to do just that.

Late last month came news of the latest round of tuition increases - an average rise at public universities of more than 8 percent (to $8,244) for in-state students and nearly 6 percent (to $20,770) for out-of-state students, and an average hike of 4.5 percent at private colleges (to $28,500). The public colleges blame state budget cuts, and all of them point to the cost of attracting top-notch faculty.

But studies have shown that the biggest driver of university budgets has been administrative bloat. Meanwhile, more and more classes are being taught by underpaid adjuncts, while 30 private college presidents earn more than $1 million a year.

The higher-education industry lobbies against progressive tax proposals that might lessen charitable giving to colleges, such as Obama's plan to reduce the tax deduction that wealthy taxpayers can claim for donations.

Universities counter that a college education remains the best engine of upward social mobility in America. And some top colleges really are trying harder to recruit low and middle-income students and digging into their endowments for financial aid. Harvard, for one, has a policy of "zero contribution" from families making $65,000 or less annually, which a spokesman said now benefits 20 percent of undergraduates.

But overall, higher education is failing to provide its promised uplift, with too many lower-tier schools graduating abysmally few of their students while too many higher-tier schools become the preserve of the over-tutored upper-middle class. Richard Kahlenberg of the Century Foundation notes that at the 146 most selective colleges in America, 74 percent of students are from the richest quarter of the population, while 3 percent are from the poorest quarter.

"It's great to have generous financial aid, but if you're not admitting any poor kids, that's not going to get you very far," he said. "Most careful research suggests these are institutions that replicate social inequality rather than upend it."

Occupy Wal-Mart
It is hard not to notice that the steady rise in inequality, starting in the late 1970s, has occurred in tandem with the decline in private-sector union membership, from 25 percent in the mid-1970s to a mere 7 percent today. It is also difficult to overlook that countries with stronger unions, such as Canada and Germany, show a far more equitable distribution of income across the working population.

Harvard labor economist Richard Freeman says that organised labor diminishes income inequality mainly by forcing employers to give back more in compensation to workers that executives otherwise would claim for themselves. In a strong union environment, this dynamic even applies to nonunion firms, which must pay better wages to compete for workers.

But there's also a broader contribution to inequality in the decline of organised labor in America the loss of the "countervailing force" that strong unions used to provide in debates with business groups over, say, financial deregulation.

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First Published: Nov 05, 2011 20:28 IST