By Michael Barone
Friday, January 10, 2014
As Barack Obama scrambles to eviscerate key sections of
his own signature health care law, he and other Democrats are trying to shift
voters' focus to another issue -- income inequality.
Unfortunately, the solutions they advocate are pitifully
inadequate or painfully perverse.
Start with the minimum wage, which some Democrats see as
an election-winning wedge issue in 2014.
True, raising the minimum wage polls well. But does
anybody really care much about it? Few minimum wage earners are heads of
households; many more are teenagers earning spare cash.
Most economists agree that a higher minimum wage costs
some low-skilled workers their jobs. And the economic redistribution it
produces, from fast-food consumers to fast-food employees, is pretty minimal.
Another Democratic policy is to continue extending
unemployment benefits. The intellectual argument for this is stronger.
Ordinarily, extended benefits tend to discourage the
unemployed from looking for work. Their skills atrophy, and finding a job later
gets harder.
But in the current new-normal economy, with record
long-term unemployment, there simply haven't been enough job openings for many
of the unemployed. Many Republicans look open to a compromise on this issue.
In any case the redistributionist effect will be only
minor and, if robust economic growth returns, temporary.
One Democrat who argues for greater change is University
of Arizona political scientist Lane Kenworthy. He believes the nation is and
should be headed to a European-style welfare state, with the government taxing
and spending 10 percent more of gross domestic product than at present.
Kenworthy would transform unemployment benefits into wage
insurance, would start early education at age 1 and would vastly expand the
Earned Income Tax Credit.
That's progressive economic redistribution, but with a
catch. For as Kenworthy admits, you can't get the money for this just by
raising taxes on very high earners: "The math simply doesn't work."
So he looks to a federal consumption tax, like Europe's
value-added taxes. That would mean shifting from the current progressive income
tax toward a more regressive European-style tax regime, with middle-income
workers subsidizing non-workers.
Other proposals floated by Democrats, such as Senator
Elizabeth Warren's call for substantially increased Social Security benefits,
would have similarly perverse effects.
Social Security is already on an unsustainable
trajectory. Increased benefits would, in time, require higher taxes on the
young, who have negative or minimal wealth, to finance payments to the elderly,
who tend to have significant net worth.
This echoes the Obamacare provision that limits premiums
on the old and sick to no more than three times the premiums on the young and
healthy. Is it really progressive to have the young subsidize the old?
Another left-wing Democrat, incoming New York Mayor Bill
de Blasio, wants to raise income tax rates on those earning $500,000 to pay for
universal preschool for the city's children.
That would certainly amount to economic redistribution,
but to whom? Research over the last 50 years shows that Head Start and other
publicly financed pre-school programs have no lasting positive effect on
learning.
What de Blasio's proposal would do is to put a lot more
unionized teachers on the city payroll. The redistribution here goes from the
very rich to the public employee unions and their allies in the Democratic
Party.
Liberal pundits are hailing de Blasio and his politics as
a harbinger of the political future and a return to the liberal tradition of
Franklin Roosevelt and his political ally New York Mayor Fiorello La Guardia.
But in 1944, the heyday of FDR and La Guardia, the five
boroughs of New York City cast 7 percent of the nation's votes. In 2012 they
cast only 2 percent of the national vote.
It's interesting that New York, which has had more
liberal and redistributionist public policies than almost anywhere else in the
nation over those 68 years, also has one of the nation's highest rates of
income inequality.
High tax rates and high housing costs (exacerbated for
many years by rent control) have squeezed middle-class families out of New
York. They have migrated in the millions to lower-tax, lower-housing-cost
places such as Florida and Texas.
The Obama Democrats did reduce economic inequality
somewhat by raising the top income tax rate back to 39.6 percent. The proposals
they're talking about now are either small potatoes, or moves to have the
working middle-class subsidize non-workers or the young to subsidize the old --
redistribution, but not very progressive.
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