Will Wilkinson and John Nye, in their contributions to this exchange, have expressed explicit or implicit support for government action to reduce discrimination, enhance access to good schooling and health care, improve opportunity for employment, and boost the living standards of the poor. Good!
What both Will and John oppose is an increase in government action, via redistributive tax and/or transfer policies, to reduce income inequality. Why? Neither John nor Will has offered either of the two most commonly voiced objections. One is that taking from the rich and giving to the poor infringes too heavily on freedom or ownership rights. I disagree with that notion, and in any event it’s irrelevant as a practical matter. We do redistribute and will surely continue to do so; the question is whether we should redistribute more when income inequality goes up. The other common objection is that increasing redistribution would reduce economic growth or employment or worsen the government’s fiscal deficit. My research and my reading of others’ suggest to me that a moderate increase in redistribution likely would have little or no adverse impact on growth, employment, or our budget deficit.
Why, then, do Will and John oppose an increase in redistribution? Will says focusing on income inequality and redistribution distracts us from doing other valuable things, such as reducing discrimination and unequal access to good schools. Okay, that’s possible. But policy makers might manage to keep their eye on the latter even as they enhance redistribution. John says an increase in redistribution isn’t needed, because true economic inequality actually has declined. It surely has declined over the past century as a whole, but not in recent decades. Finally, John says an increase in redistribution won’t reduce measured income inequality because the data don’t include transfers or taxes. That’s simply mistaken.
John and Will have emphasized that in their view rising income inequality is not the problem. I agree. I think rising income inequality is neither the only problem nor the most important problem our society faces. But that doesn’t mean it’s not a problem worth worrying about and trying to alleviate.
I don’t believe an increase in income inequality automatically requires an increase in redistribution. But the rise in income inequality in America over the past several decades has been large, a core feature of it has been massive incomes for those at the very top, luck has played a significant role in determining who has and has not benefited, taxing away a larger portion of high incomes would do little if any harm to those households or to the economy, and increasing (certain types of) transfers and services to those in the bottom half or quarter or tenth would improve their lives. For these reasons, I think an increase in redistribution would be a good thing to do.
In an earlier post I said,
The average inflation-adjusted pretax income of the top 1% of American households jumped from about $500,000 in 1979 to about $1,700,000 in 2006. For households in this group, the effective tax rate (taxes paid as a share of pretax income) for federal taxes in 2006 was about 31%. That was down from 37% in 1979 and 34% in the mid-to-late 1990s. I favor pushing that effective tax rate up to around 35% (there are various ways to do this) and using some or all of the additional tax revenue to increase the Earned Income Tax Credit.
Perhaps Will and/or John would support this if we label it “helping the poor” instead of “increasing redistribution” and if we say the motivation for it is unequal opportunity rather than rising income inequality. If so, that’s fine with me.