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A public policy blog from AEI
University of Arizona social scientist Lane Kenworthy wrote one of the most important books of 2013, Social Democratic America. In it, he outlines and explains a bold — and expensive — universal social insurance agenda to make the United State a lot more Nordic. I would think his progressive credentials are beyond dispute. So it’s awfully interesting to see what he says about the left’s obsessive focus on income inequality:
I believe, as I said earlier, there are good reasons to object to the high and rising level of income inequality in the US. Yet I fear the American left’s recent move to put income inequality reduction front and centre might be harmful rather than helpful. It may foster a conviction that the key to addressing America’s social, economic and political problems is to reduce the top 1 percent’s share or the Gini coefficient.
That could distract attention from more direct and effective efforts to address those problems. Such efforts include fully universal health insurance; improvements in eligibility, duration and benefit level for various social-insurance and social-assistance programmes; wage insurance; early education; enhanced financial support for college; a minimum wage indexed to prices; an expanded earned-income tax credit indexed to average compensation; and monetary policy less tilted towards inflation avoidance.
Policy changes like these would go a long way towards improving economic security, enhancing opportunity (and mobility) and ensuring shared prosperity in the US. …
In the US, policy changes such as these will require more tax revenue. Here lies another troublesome consequence of a focus on inequality reduction: a sizeable portion of the American left has come to think of taxation solely in terms of its redistributive impact. The aim of tax reform, in this view, should be to reduce income inequality. The change many favour is higher tax rates on the top 1 percent or 5 percent. Yet while that may reduce income inequality, it will not provide the US government with anywhere near the money it needs to do the sorts of things I’ve just mentioned.
Instead, the chief aim should be to increase revenues. In my estimation, the US ought to be thinking about how to get an additional 10 percent of GDP in coming decades, and that cannot be done by increasing the taxes of just those at the top. Some of the programmes I’ve mentioned would help to reduce income inequality by boosting the incomes of households on the lower and middle rungs of the income ladder. Indeed, focusing on economic security, opportunity and rising living standards might be the most effective route to lessening income inequality.
The American public has never shown much appetite for income redistribution. Even during the past three decades, as income inequality has shot up, the main detectable reaction among Americans has been a desire to expand programmes that focus on opportunity. That does not mean it is impossible to take steps to reduce inequality in the market distribution or to increase redistribution. It means programmes that do this are more likely to be supported if they are not marketed as a means to achieve income- inequality reduction. Other programmes I listed above are public services. Though child- care, schooling and health care do not reduce the measured degree of income inequality, since they do not change household incomes, they do reduce inequality of living standards.
Income inequality is too high in the US. It would be good to reduce it. But it is a mistake, in my view, to put inequality reduction at the top of the agenda.
In other words, the American left needs to get behind a value-added tax rather than just focusing on higher taxes on business and the wealthiest Americans. Left-wing economists and wonks like Kenworthy talk like this at symposiums and conferences all the time. Unfortunately for them, Democratic politicians have stressed publicly not raising taxes on the 99% — or at least the 98% — despite the obvious inability to pay for all their promises without a VAT. As political scientist William Voegeli has put it: “The best evidence Americans oppose a EU-sized welfare state is Democrats fear of asking voters to pay for it.” Kenworthy believes history is on his side and such acceptance will come in time — although had he written his book after the Obamacare launch, he might not be so confident.
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