Republican presidential candidate Mitt Romney’s tax returns have just been released. The private equity executive will pay $6.2 million in taxes on a total of $42.5 million in income over the years 2010 and 2011, paying a tax rate of 13.9% in 2010, though he will have to pay a few percent more in 2011.

Here’s the kicker: his tax rate is lower than most wage-earning Americans because most of his income flows from capital gains on investments. Hopefully this will spark some discussions on the fairness of the American tax code, though I have my doubts.

This is all part of an ongoing, documented trend – the rich in America are getting richer. Dr. Alan Krueger, chairman of the President’s Council of Economic Advisers, cited in this article, has spoken about growing income inequality in America pointing out that the share of all income accruing to the top 1% increased by 13.5 percentage points from 1979 to 2007, and exceeds the total amount of income received by the entire 40% of the lowest-earning households in the country.

In the UK, tackling tax avoidance and excessive pay, is ‘de rigeur’ for politicians. Cameron has criticised pay rises that bear no relation to performance, Nick Clegg said he wanted to target “wealthy elite or large businesses that can pay an army of tax accountants that can get out of paying their fair share of tax,” while Labour’s shadow business secretary, Chuka Umunna, has called for a more responsible and better capitalism.

Although I doubt it’s on Romney’s reading list, and it would be unlikely to find it in his (no doubt impressively wood-panelled) personal library, Romney might be interested to read The Spirit Level, written by UK-based epidemiologists Richard Wilkinson and Kate Pickett.
Their data analysis reveals that even if you’re a private equity executive earning top dollar, if you live in a highly unequal society, you will still be more likely to be affected by social problems, like ill health or violence, than someone earning less and living in a more equal society.

Wilkinson and Pickett outline 20 different types of social problem including homicide rates, infant mortality, teenage pregnancies, high rates of imprisonment and health problems, including mental health issues, and examine the statistics on them in 23 modern industrial nations and all 50 American states. (This is important, because this means that they were looking at two different data sets with two different settings, which allowed them to see if there were correlations between the two sets despite their differences.)

They break the 20 problems outlined above down into 9 key problems (cited on pg 19, The Spirit Level, 2010):

• level of trust
• mental illness (which includes drug and alcohol addiction)
• life expectancy and infant mortality
• obesity
• children’s educational performance
• teenage births
• homicides
• imprisonment rates
• social mobility (though this data wasn’t available for US states).

They find that countries like Japan and Norway, which are more equal, also experience fewer social and health problems, while the UK, Portugal and the USA (in ascending order with the US in the stratospheric high spot) have high levels of inequality and problems. When they compare US states the same patterns emerge and “confirms the international picture” (pg. 21, The Spirit Level, 2010).

What they find is that the problem isn’t caused by the society not being rich enough but by the “scale of the material differences between people within each society being too big” (pg. 25, The Spirit Level, 2010). That is, how you compare with other people in your society is crucial.

This is because, they argue, we are social creatures. How we are seen and what people think of us matters to us.

This was reflected in comments made this morning on the radio by by Robert Peston, Business editor of the Today Programme (from 40 seconds). Peston said he was talking recently to a well-known businessman who said: “the culture of the boardroom is that big pay isn’t a big issue.” He said the CEO said the reason he wanted to earn tons of money, was to “score” – it was “the way of proving to the world that he was better than his competitors”.

The further up a social ladder in the society you live in, the better you feel about yourself – the lower down, the worse.

I think it would be fascinating to compare the journeys of two people with similar jobs from very different societies, say a teacher from Cost Rica with a teacher in America, and ask them to rate feelings of happiness, levels of trust and cohesion they feel within their society etc. Perhaps it would reveal nothing. But, I think, personal stories will reveal the impact of slightly different paths taken by more equal societies more convincingly than reams of data. They are more likely to spark important questions. How much wealth is enough? Do other things matter more to us, and lead us to live happier, healthier lives?