1 Law and Economic Justice Jon Forman Alfred P. Murrah Professor of Law University of Oklahoma Central Oklahoma Association of Legal Assistants Oklahoma City, Oklahoma April 29, 2011

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U.S.: Share of Household Income & Gini Index, 2005 Market incomeDisposable income Quintiles Lowest Second Middle Fourth Highest Gini Index

4 Education Wage Premium 20 Facts About U.S. Inequality that Everyone Should Know,

5 Job Losses 20 Facts About U.S. Inequality that Everyone Should Know,

6 20 Facts About U.S. Inequality that Everyone Should Know, Productivity and Real Income

7 CEO Pay 20 Facts About U.S. Inequality that Everyone Should Know,

8 Office of Management and the Budget, A New Era of Responsibility: Renewing America’s Promise (2009).

9 20 Facts About U.S. Inequality that Everyone Should Know, Deregulation of the Labor Market

10 20 Facts About U.S. Inequality that Everyone Should Know, Intergenerational Income Mobility

Rising Poverty 11 U.S. Census Bureau, Income, Poverty, and Health Insurance Coverage in the United States: 2009, (Current Population Report No. P60-238, September 2010),

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13 Congressional Budget Office, Trends in Federal Tax Revenues and Rates (December 2, 2010), at 24,

Rising Inequality 14

15 Average Annual Earnings of Full-time Workers, 2008 Doctors (Family & GP)$161,490 Lawyers 124,750 Economists 90,830 Nurses (RN) 65,130 Police 52,810 Auto mechanics 38,967 Secretaries 29,990 Garbage collectors 37,540 Orderlies 24,620 Waiters and waitresses 19,580

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Income Inequality Gini coefficient Interdecile ratio P90/P10 Interdecile ratio P50/P10 LevelRankLevelRankLevelRank Australia Canada Mexico Sweden United Kingdom United States OECD

Inequality and Redistribution Country Gini Before Gini After Poverty Before (50% of median income) Poverty After (50% of median income) Tax % GDP Social Spending %GDP Australia Canada Mexico n/a Sweden United Kingdom United States OECD

23 Social Spending & Child Poverty in Selected Countries

24 Joint Committee on Taxation, Present Law and Historical Overview of the Federal Tax System (JCX-1-11), January 18, 2011, Joint Committee on Taxation, Present Law and Historical Overview of the Federal Tax System (JCX-1-11), January 18, 2011, at 70,

25 U.S. Payroll Tax Rates: Selected Years Year Percent paid jointly by employee and employer Medicare Social Security

26 OECD Tax Database, Tax-to-GDP ratio, 2008

Earned Income Tax Credit (EITC) Increase  New credit percentage for 3 or more qualifying children I.R.C. § 32 (ARRA § 2002) Temporary increase 2009 & 2010 Computed as 45% of earnings (up from 40%)  Maximum credit increased to $5,666 in 2010  Maximum AGI increased to $48,362 in

Child Tax Credit  $1,000 per qualifying child I.R.C. § 24 (ARRA § 1003)  Temporary expansion of eligibility for refundable credit  More lower income families qualify: 2008 – threshold amount was = $8, and 2010 – threshold amount = $3,000 28

Poverty Levels & Net Federal Tax Thresholds, 2010 Unmarried individual Single parent w/ 1 child Married couple w/ 2 children Married couple w/ 3 children 1. Poverty levels$10,830$14,570$22,050$25, Simple income tax threshold (before credits) $9,350$15,700$26,000$29, Income tax threshold after credits $13,395$32,380$50,250$60, Employee payroll tax threshold $0 5. Combined income & payroll tax threshold $9,348$25,717$38,635$43,788 29

Taxes at Poverty Level, Unmarried individual Single parent w/ 1 child Married couple w/ 2 children Married couple w/ 3 children 1. Poverty levels$10,830$14,570$22,050$25, Income tax at poverty level (after credits) -$453-$4,450-$7,712-$8, Employee Social Security & Medicare tax at poverty level $829$1,115$1,687$1, Combined income & payroll tax at poverty level $376-$3,335-$6,025-$6, Combined tax as a % of income at poverty level 3.5%-22.9%-27.3%-25.5%

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Outlays for the Principal Federal Benefit Programs in the United States (billions of dollars) actual2015 estimate Social Security$678$893 Medicare Medicaid Unemployment compensation Supplemental Security Income Earned income tax credit Child tax credit Making work pay tax credit <1 n/a Food assistance Family support Housing assistance 10 5 General retirement and disability 8 10 Federal employee retirement and disability Veterans benefits and services 49 84

33 Some Specific Recommendations  Making Taxes Work  Making Welfare Work  Modestly Raising the Minimum Wage and indexing it for Inflation  A Two-Tiered Social Security System  A Restructured Pension System  Universal Health Care  Move Toward Full Employment

34 Percentage Composition of Federal Receipts by Source: Year Percent Individual Income Tax Corporation Tax Social Insurance Excise Taxes Other

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38 Average Cumulative Tax Rates Confronting Low-to-Moderate-Income Families ($10k - $40k)

39 $2,000 per Worker Earned Income Credit, with or without a Phase-out

40 Pre-transfer Earnings plus Universal Grants plus Worker Credit less Tax Imposed Equals After- tax Income 0$6, $5,000$6,000$1,000 $11,000 $10,000$6,000$2,000 $16,000 $20,000$6,000$2,000 $4,000 $24,000 $30,000$6,000$2,000 $6,000 $32,000 $40,000$6,000$2,000 $8,000 $40,000 $50,000$6,000$2,000 $10,000 $48,000 $100,000$6,000$2,000 $27,500 $80,500 $150,000$6,000$2,000 $45,000$113,000 $200,000$6,000$2,000 $62,500$145,500 How a Comprehensive Tax and Transfer System Would Affect a Single Parent with Two Children

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42 Health Coverage 2009 Source of Coveragemillionspercentage Total population Employment-based coverage Individually Purchased Public Medicare Medicaid Military health care No health insurance

43 Summary  Government should intervene To encourage work Promote economic justice  Tax, spending, and regulatory proposals Increase the size of the economic pie Allow us to divide it more equally

About the Author  Jonathan Barry Forman (“Jon”) is the Alfred P. Murrah Professor of Law at the University of Oklahoma College of Law;  Jon is the author of Making America Work (Washington, DC: Urban Institute Press, 2006); and  Jon was the Professor in Residence at the Internal Revenue Service Office of Chief Counsel, Washington, DC, for the academic year.  Jon can be reached at , 44