Commentary Magazine


Topic: income inequality

Democrats Sacrifice Unemployed Pawns

On yesterday’s Sunday news shows, Democrats doubled down on their preferred issue of the new year: income inequality and unemployment insurance. Both Senate Majority Leader Harry Reid and senior Senate Democrat Chuck Schumer railed at Republican opponents of extending unemployment benefits and sought to portray the GOP as a conclave of heartless Scrooge McDucks chuckling while the jobless suffer. This is good politics for liberals, whose New Year’s resolution was to do everything in their power to change the national political conversation from the ObamaCare debacle, as well as good television. Given the popularity of these proposals, the discussion about the course of the debate has largely followed the lines Democrats like. Thus, the reluctance of most congressional Republicans, especially the leadership of the House of Representatives, to act on President Obama’s proposal to again extend unemployment insurance plays into themes that work well for Democrats such as fairness, conservative apathy about the “47 percent” who get federal benefits (to use Mitt Romney’s infamous and foolish formulation), and a “do-nothing Congress” led by a dysfunctional Republican Party.

It’s debatable whether Republicans are doing themselves a favor by opposing the president on issues where he and his allies can appear to claim the high moral ground. But there are two main problems with this strategy for the Democrats. One has to do with how much traction these liberal talking points really have with the electorate in a midterm election year in which Democrats are defending far more competitive House and Senate seats than their opponents. The other goes to whether Democrats are actually serious about helping the unemployed or anyone else disadvantaged by the income inequality they’ve been talking about. If their genuine goal were to really extend the benefits, all they would have to what their media cheerleaders keep telling the GOP they must do in every other context: compromise. If they were to agree to some spending cuts in order to pay for the benefits, it’s likely that even the House GOP would go along with the idea. Yet since they won’t, it is evident that their purpose is not so much to alleviate the travails of the unemployed as it is to outmaneuver the Republicans. As such, any tactical advantage the Democrats may gain may be fleeting.

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On yesterday’s Sunday news shows, Democrats doubled down on their preferred issue of the new year: income inequality and unemployment insurance. Both Senate Majority Leader Harry Reid and senior Senate Democrat Chuck Schumer railed at Republican opponents of extending unemployment benefits and sought to portray the GOP as a conclave of heartless Scrooge McDucks chuckling while the jobless suffer. This is good politics for liberals, whose New Year’s resolution was to do everything in their power to change the national political conversation from the ObamaCare debacle, as well as good television. Given the popularity of these proposals, the discussion about the course of the debate has largely followed the lines Democrats like. Thus, the reluctance of most congressional Republicans, especially the leadership of the House of Representatives, to act on President Obama’s proposal to again extend unemployment insurance plays into themes that work well for Democrats such as fairness, conservative apathy about the “47 percent” who get federal benefits (to use Mitt Romney’s infamous and foolish formulation), and a “do-nothing Congress” led by a dysfunctional Republican Party.

It’s debatable whether Republicans are doing themselves a favor by opposing the president on issues where he and his allies can appear to claim the high moral ground. But there are two main problems with this strategy for the Democrats. One has to do with how much traction these liberal talking points really have with the electorate in a midterm election year in which Democrats are defending far more competitive House and Senate seats than their opponents. The other goes to whether Democrats are actually serious about helping the unemployed or anyone else disadvantaged by the income inequality they’ve been talking about. If their genuine goal were to really extend the benefits, all they would have to what their media cheerleaders keep telling the GOP they must do in every other context: compromise. If they were to agree to some spending cuts in order to pay for the benefits, it’s likely that even the House GOP would go along with the idea. Yet since they won’t, it is evident that their purpose is not so much to alleviate the travails of the unemployed as it is to outmaneuver the Republicans. As such, any tactical advantage the Democrats may gain may be fleeting.

Conservatives who are urging GOP leaders to stand firm on both the unemployment issue and other “inequality” wedge issues are right. Endless extensions of benefits as well as hiking the federal minimum wage are both economic snake oil. As I wrote last month, such a measure is good for neither the nation’s fiscal health nor, as many serious economists have pointed out, for the long-term prospects of the unemployed since it irresponsibly produces two grim results: it discourages searches for work and transforms what was designed as a stopgap measure into something that is well on its way to becoming a permanent unfunded entitlement. But it is also true that opposing anything that can be portrayed as helping the unemployed is a certain political loser. The more Republicans take the Democrats’ bait and engage in debates about these issues, the more they are merely helping their opponents change the subject from the growing costs and dysfunction of ObamaCare as well as the fact that this administration is a lot better at politics than it is at governing.

But, as even the New York Times’s analysis of this argument noted, although Schumer claimed yesterday on ABC’s This Week that these inequality wedge issues would come back to haunt Republicans in theoretical swing seats in the midterms this coming November, there’s no evidence whatsoever that any of this will have a discernible impact on the results.

More importantly, Obama’s and Reid’s grandstanding on the unemployment issue highlights yet again the major difference between the current Democratic team and Bill Clinton’s far more successful presidency. Clinton was able to beat up Republicans on issues like this almost at will. But at the same time, his keen political instincts and natural governing ability enabled him to cut deals with his GOP opponents to get things done. This is exactly the kind of moment when Clinton would have compromised with his House Republican rivals in order to get something like an unemployment benefits extension and then taken all the credit for it even though the other side would have done as much if not more to make the deal. By contrast, though Obama may score a few points at the Republicans’ expense by refusing to move in their direction, it won’t change a wretched political narrative that is likely to be far more influenced by the more far-reaching impact of the rising costs of health care and insurance over the course of the year.

By acting in this manner, Obama and the Democrats are doing more than failing to achieve their stated objectives; they are also effectively sacrificing the unemployed as expendable pawns in a losing game of political chess. Like the vast population of middle class, younger voters, as well as the elderly all of whom stand to lose as ObamaCare continues its downward spiral, it’s unlikely that the unemployed will thank the Democrats for serving as cannon fodder in their war with the GOP. Taken as a whole, this strategy may turn out to be an even bigger political loser than a Republican decision to stick to conservative principles and to refuse to budge on unemployment or the minimum wage.

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Minimum Wage Won’t Save Dems in 2014

Democrats have had a generally miserable 2013, but they think they have the answer to how to make 2014 end on a better note for them. Some on the left may still be holding onto the forlorn hope that ObamaCare will somehow magically be transformed from the millstone around their necks to a popular initiative like Social Security or Medicare. But they are thinking clearly about the political impact of the health-care fiasco. Rather than just bang their heads against that wall, Democrats are looking to change the subject. So rather than try to sell skeptical Americans on the dubious idea of increasing the government’s involvement in health care is a good idea, they appear to be set on convincing the electorate that the key issue facing the country isn’t the looming ObamaCare disaster but the notion of inequality.

As the New York Times reported in a front-page feature yesterday, Democrats seem to think provoking a debate about raising the minimum wage is the magic bullet that will slay Republican candidates in a year in which the GOP is generally favored to make midterm gains in Congress if not take back the Senate in November. The minimum wage proposal doesn’t stand alone, as it is part of an effort by the White House to pivot back to the start of 2013 when the president unveiled a laundry list of liberal ideas in his State of the Union speech. The minimum wage was part of a package that was supposed to be the core of the reelected Obama’s second-term program in which income inequality would, along with climate change, gun control, and an expansion of entitlements, herald a sharp left turn in American politics. But while the president is hoping for a mulligan on a 2013 which was marked by scandals at home and foreign-policy disasters like Egypt and Syria abroad, life is rarely that simple. Though the minimum wage seems like a political winner to his strategists, the problem is that while the bully pulpit of the presidency can help set the country’s political agenda, mere strategy can’t divert voters from the impact of problems that affect the lives of large numbers of citizens. Though a pivot left will please the president’s base, it is no match for the havoc that ObamaCare will have on the nation over the course of 2014.

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Democrats have had a generally miserable 2013, but they think they have the answer to how to make 2014 end on a better note for them. Some on the left may still be holding onto the forlorn hope that ObamaCare will somehow magically be transformed from the millstone around their necks to a popular initiative like Social Security or Medicare. But they are thinking clearly about the political impact of the health-care fiasco. Rather than just bang their heads against that wall, Democrats are looking to change the subject. So rather than try to sell skeptical Americans on the dubious idea of increasing the government’s involvement in health care is a good idea, they appear to be set on convincing the electorate that the key issue facing the country isn’t the looming ObamaCare disaster but the notion of inequality.

As the New York Times reported in a front-page feature yesterday, Democrats seem to think provoking a debate about raising the minimum wage is the magic bullet that will slay Republican candidates in a year in which the GOP is generally favored to make midterm gains in Congress if not take back the Senate in November. The minimum wage proposal doesn’t stand alone, as it is part of an effort by the White House to pivot back to the start of 2013 when the president unveiled a laundry list of liberal ideas in his State of the Union speech. The minimum wage was part of a package that was supposed to be the core of the reelected Obama’s second-term program in which income inequality would, along with climate change, gun control, and an expansion of entitlements, herald a sharp left turn in American politics. But while the president is hoping for a mulligan on a 2013 which was marked by scandals at home and foreign-policy disasters like Egypt and Syria abroad, life is rarely that simple. Though the minimum wage seems like a political winner to his strategists, the problem is that while the bully pulpit of the presidency can help set the country’s political agenda, mere strategy can’t divert voters from the impact of problems that affect the lives of large numbers of citizens. Though a pivot left will please the president’s base, it is no match for the havoc that ObamaCare will have on the nation over the course of 2014.

Republicans, however, should not underestimate the appeal of inequality rhetoric. Though raising the minimum wage is economic snake oil that will do far more harm to business and employment than it will help poor workers, such efforts do speak directly to values that most Americans support. Voters like such laws because they sound as if they speak to fairness and the idea of soaking the wealthy even if the impact will hurt those seeking work at the bottom of the pay scale. As the Times rightly notes, polls consistently show broad support for minimum wage increases and the GOP must be wary of being drawn into a fight over the issue.

But a genuine pivot left requires more than the transitory rhetorical advantages that might be gained from the discussion of minimum wages. Americans like giving the poor a break, but they are far more concerned with the impact of higher taxes, out-of-control government spending, and, most of all, the impact of government interference on the cost and quality of their health care.

The Democrats aren’t mistaken to think they can trick the Republicans to force them to defend economic positions that are fiscally wise but unpopular, such as opposing the minimum wage increase or not extending unemployment benefits. Their mistake lies in misunderstanding the far-reaching impact of the president’s signature health-care plan will have on vast numbers of voters.

At its heart, the talk about income inequality is rooted in a belief that the fuss about ObamaCare is only temporary and more about website glitches and embarrassing presidential sound bites (“If you like your health insurance, you can keep it”) than about the law itself. Liberal strategists are in denial not only about what has already happened on the issue but also what is about to unfold in the coming year. As Lanhee Chen wrote yesterday for Bloomberg News, Democrats are going to like the feedback about the Affordable Care Act in 2014 even less than they did in 2013. The president and his team front-loaded the measure to allow its more popular elements to go into effect before the 2012 election with the less savory elements held back until he was safely reelected. But as bad as things look now in terms of approval for a law that has always been opposed by most Americans, it’s about to get worse:

First, some of ObamaCare’s least popular provisions go into effect in 2014. This includes a new $60 billion tax on health insurers, which will be levied relative to premiums collected and directly passed on to consumers. And, of course, ObamaCare’s requirement that individuals secure health insurance coverage (or pay a tax penalty) kicks in during the coming year as well.

Second, millions of Americans who buy their coverage on the individual market or get it through small employers will be shocked by just how much their premiums go up in 2014. The young and healthy will be especially susceptible to this rate shock, and this in turn will further drive them away from purchasing coverage in future years. Given skyrocketing premiums, the economic incentives for many of these “young invincibles” are aligned against buying coverage in the coming years. But these are also the people that the ACA most needs to be enrolled through its health insurance exchanges to offset the comparatively higher risk and costs associated with insuring the sick and old. These dynamics may lead to even higher premiums in the coming years.

Third, not only will millions of Americans on the individual and small group markets who like their plans be unable to keep them in 2014, but many will experience what it’s like to be unable to continue seeing the doctors they know and trust. As health insurers face pressure to keep costs down while providing the richer package of benefits that ObamaCare mandates, many are limiting their networks of doctors and other health-care providers. A cancer survivor’s opinion article in the Wall Street Journal illustrated the horrible situation that ObamaCare will place some Americans in: Being forced to choose between doctors that have been critical to their care or, in some cases, not having access to any of their existing health-care providers.

Finally, ObamaCare’s Medicare cuts will continue to hurt senior citizens. For the 14 million people enrolled in the Medicare Advantage program, the ACA’s $200 billion in cuts over the next 10 years will accelerate in 2014 and have tangible impacts on beneficiaries. Insurers predict that seniors in Medicare Advantage plans will see higher premiums, increased cost-sharing for primary and specialist visits, and limits on the doctors they can see. Although the ACA is not solely responsible for the headwinds the Medicare Advantage program faces, it will (and should) shoulder most of the blame.

When combined, these four elements set the stage for a political tsunami that will drown any effort to distract the public with talk about inequality. Democrats have assumed that once it was implemented, ObamaCare would be as popular as Social Security and Medicare. But they are only just starting to grasp the fact that unlike those programs that spread the wealth with few, if any, voters being worse off for their passage, the misnamed Affordable Care Act creates a vast population of Americans who are going to be hurt by the law. In 2014, their number will grow, not shrink. The first year of the president’s second term ended with ObamaCare as the top political story of the year. The likelihood that it will remain so in 2014 spells big political trouble for Democrats whose fate will be determined more by this fiasco than any fights they can pick about the minimum wage.

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A Challenge to Liberals

In his column, the Washington Post’s E.J. Dionne once again issues a “challenge for conservatives.” This time his focus is on income inequality.

According to Dionne, “It’s good that conservatives are finally taking seriously the problems of inequality and declining upward mobility. It’s unfortunate that they often evade the ways in which structural changes in the economy, combined with conservative policies, have made matters worse.” Dionne goes on to praise European nations whose policies are more “’socialist’ or (to be precise) social democratic than ours” and which also have greater social mobility than we find in America today.

Dionne cites several factors for this – guaranteed health insurance, stronger union movements, more generous welfare states, and higher taxes. He then cites William Julius Wilson’s review of Timothy Noah’s book The Great Divergence, which mentions “the increasing importance of a college degree due to the shortage of better-educated workers; trade between the United States and low-wage nations; changes in government policy in labor and finance; and the decline of the labor movement. He also considers the extreme changes in the wage structure of corporations and the financial industry, in which American CEOs typically receive three times the salaries earned by their European counterparts.”

“Most conservatives accept the importance of education,” according to Dionne, “but then choose to ignore all the other forces Noah describes.”

In fact, some of us have written about income inequality in somewhat more detail than Dionne has. This essay in National Affairs, for example, is roughly 10 times longer than Dionne’s column – and is, I think it’s fair to say, less tendentious. (In reading Dionne and some others, I’m reminded of this description: “Like a magnet among iron filings, [his mind] either concentrated acceptable facts in a tight cluster, or repelled them and kept itself clean.”)

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In his column, the Washington Post’s E.J. Dionne once again issues a “challenge for conservatives.” This time his focus is on income inequality.

According to Dionne, “It’s good that conservatives are finally taking seriously the problems of inequality and declining upward mobility. It’s unfortunate that they often evade the ways in which structural changes in the economy, combined with conservative policies, have made matters worse.” Dionne goes on to praise European nations whose policies are more “’socialist’ or (to be precise) social democratic than ours” and which also have greater social mobility than we find in America today.

Dionne cites several factors for this – guaranteed health insurance, stronger union movements, more generous welfare states, and higher taxes. He then cites William Julius Wilson’s review of Timothy Noah’s book The Great Divergence, which mentions “the increasing importance of a college degree due to the shortage of better-educated workers; trade between the United States and low-wage nations; changes in government policy in labor and finance; and the decline of the labor movement. He also considers the extreme changes in the wage structure of corporations and the financial industry, in which American CEOs typically receive three times the salaries earned by their European counterparts.”

“Most conservatives accept the importance of education,” according to Dionne, “but then choose to ignore all the other forces Noah describes.”

In fact, some of us have written about income inequality in somewhat more detail than Dionne has. This essay in National Affairs, for example, is roughly 10 times longer than Dionne’s column – and is, I think it’s fair to say, less tendentious. (In reading Dionne and some others, I’m reminded of this description: “Like a magnet among iron filings, [his mind] either concentrated acceptable facts in a tight cluster, or repelled them and kept itself clean.”)

The issue of income inequality is a good deal more complicated and less ideologically simplistic than Dionne acknowledges. Among the things the essay points out but Dionne ignores is that (a) income taxes in America are the most progressive among the rich nations in the world; (b) inequality is driven in part by the growing workforce participation rate of women; (c) federal old-age entitlement programs have become less progressive (which argues for means-testing Social Security and Medicare, a policy that has been fiercely rejected by liberals in the past); and (d) one of the quickest ways to increased income equality is a severe recession (because severe recessions destroy capital, which hurts top income earners more than average workers).

Still another factor has contributed to income inequality. In their book The Winner-Take-All Society, economists Robert Frank and Philip Cook argue that certain markets are defined by the concentration of wealth in the hands of a few top performers. The winner-take-all model has come to dominate not just the corporate and financial industry but a number of professional sectors, including sports, art, acting, and music. Yet Dionne never seems to be troubled by the amount someone like, say, Bruce Springsteen makes. (Springsteen is estimated to be worth around $200 million, though that matters not, as his politics are liberal and his songs are, according to Dionne, a paean to communitarianism.) The Washington Post columnist’s wrath is usually directed toward those who are successful in business. I’ll leave it to discerning readers to figure out why.

As for the issue of social mobility, the National Affairs essay I co-authored points out that “Whether one judges by intragenerational mobility (meaning movement within or between income brackets and social classes within an individual’s lifetime) or intergenerational mobility (movement within or between income brackets and social classes occurring from one generation to the next), the United States is less mobile than it should be.”

But here is one fundamental area in which I depart from Dionne, which is that the problem in America today is not wealth but rather persistent poverty. And the right way to deal with income inequality is not by punishing the rich, as the left is eager to do, but by doing more to help the poor become richer, chiefly by increasing their social capital. (Robert Beschel and I sketch out what the broad outlines of a real social-capital agenda might consist of.)

One cannot help but believe that many progressives, in the name of reducing income inequality, would be willing to see the poor get poorer so long as the rich lost ground as well. Whether or not Dionne fits in this category, it should be said that he has never adequately explained his passionate opposition to welfare reform in the 1990s, which ranks as one of the most successful social reforms in the last half-century and which decreased dependency and improved the condition of the poor. It’s curious, too, that Dionne would hold up Europe as a model for America, given the extraordinary fiscal crisis and human suffering that is now sweeping Europe.

In any event, Dionne’s column at least provides an example of the fundamentally different worldviews that are competing and clashing in our time. Dionne really does hold up the socialist/social democracies of Europe as a model. Conservatives do not. Greece is not what conservatives are hoping to replicate in America.

These are matters that really ought to be the subject of a vigorous national debate.

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Nothing Fair About Obama’s “Fairness”

Fairness and equality are 2012’s version of 2008’s hope and change. Barack Obama is monopolizing those brands while shirking the business of responsible governance and national purpose. Last week, millions of Americans received an unsolicited email from the White House urging individuals to “Just enter a few pieces of information about your taxes, and see how many millionaires pay a lower effective tax rate than you.” This was no ordinary piece of election year propaganda, but rather a draft notice urging citizens to report to duty and fight the class war declared by the president himself.  With titanic debt and deficit values assuming the ignorable status of imaginary numbers, he is refocusing our anxieties on the tangible fortunes of our neighbors.

Obama’s case for reelection rests on a false choice: America can retain its basic humanity via government intervention or sell its national soul for private profit. The press, as usual, is the megaphone. A new ABC News/Washington Post poll asks: “What do you think is the bigger problem in this country—unfairness in the economic system that favors the wealthy, or over-regulation of the free market that interferes with growth and prosperity?” Fifty-two percent said “unfairness,” and 37 percent said “over-regulation.” Some have pointed out that the poll sample is heavily skewed toward Democrats and the results are therefore meaningless. But that misses the larger point. The question is meaningless. Choosing between over-regulation and unfairness is like choosing between lethargy and obesity. For the past 50 years, federal regulation and income inequality have grown in tandem. See charts here and here.

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Fairness and equality are 2012’s version of 2008’s hope and change. Barack Obama is monopolizing those brands while shirking the business of responsible governance and national purpose. Last week, millions of Americans received an unsolicited email from the White House urging individuals to “Just enter a few pieces of information about your taxes, and see how many millionaires pay a lower effective tax rate than you.” This was no ordinary piece of election year propaganda, but rather a draft notice urging citizens to report to duty and fight the class war declared by the president himself.  With titanic debt and deficit values assuming the ignorable status of imaginary numbers, he is refocusing our anxieties on the tangible fortunes of our neighbors.

Obama’s case for reelection rests on a false choice: America can retain its basic humanity via government intervention or sell its national soul for private profit. The press, as usual, is the megaphone. A new ABC News/Washington Post poll asks: “What do you think is the bigger problem in this country—unfairness in the economic system that favors the wealthy, or over-regulation of the free market that interferes with growth and prosperity?” Fifty-two percent said “unfairness,” and 37 percent said “over-regulation.” Some have pointed out that the poll sample is heavily skewed toward Democrats and the results are therefore meaningless. But that misses the larger point. The question is meaningless. Choosing between over-regulation and unfairness is like choosing between lethargy and obesity. For the past 50 years, federal regulation and income inequality have grown in tandem. See charts here and here.

If government intervention corrects unfairness, as liberals insist, why when placed side-by-side, do the two look as cozy as temperature and CO2 in an Al Gore propaganda blockbuster?

Conservatives are failing entirely to take this debate where it needs to go. Over-regulation isn’t just unfair in the “it’s not right to tax my billions because I’ve earned them” sense. Overregulation is unfair for everyone. An over-regulated American housing market saw lenders forced into giving loans to buyers without sufficient credit. When it came time to pay up, the whole scheme went under in a flash, nearly taking financial markets down, and causing the job-killing recession from which we continue to suffer. If the 2008 collapse put you out of work blame a disastrous piece of liberal legislation known as the 1977 Community Reinvestment Act—not millionaires.

Federally instituted “fairness” furnishes undeserved opportunities for house-of-cards companies like Solyndra to edge out less fashionably green, but more worthwhile, competitors. Financial regulation aimed at curbing Wall Street greed only serves to discourage smaller start-up capitalists without the money to troubleshoot the regulation maze as ably as giant corporations.

Obama isn’t offering fairness at all. He’s pitching therapeutic divisiveness: “see how many millionaires pay a lower effective tax rate than you,” get mad, make them pay. In 2008, the guns-and-Bible part of Obama’s “bitter clinger” comment made headlines, but there was more to what he said. He also scolded Americans who “cling to antipathy to people who aren’t like them … to explain their frustrations.” That antipathy is the Obama 2012 campaign message. Just let him pick the targets.

Responsible parents tell their children at the first signs of self-defeating envy, “Don’t worry about everyone else; worry about yourself.” What is beneath the dignity of children is embraced by our president. If indeed our national soul now hangs in the balance, its salvation depends on how Americans respond to the calls for disunity coming from the highest office in the land.

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Income Inequality and the Buffett Rule

In his post this morning on Liberals, Conservatives, and Tax Fairness, Peter Wehner writes,

Liberals are correct about this: income inequality has increased over recent decades. The task of conservatives is to give a full and fair picture of income gaps in America, to explain what is behind it, and to point out the injustice of the left’s remedies and the degree to which their proposals represent a radical departure from America’s ideals.

I could hardly agree more, and agree that his excellent article in National Affairs, “How to Think About Inequality,” is a great place to start.

I would add one more reason why income inequality has grown in recent decades, and it’s not a small one: technology. Whenever a major new technology develops, it causes a marked and sudden inflorescence of new fortunes that greatly exceed the old fortunes. This happened with railroads (Vanderbilt, Gould, Harriman, Hill, etc.), steel (Carnegie, Phipps, Frick, Schwab, etc.), automobiles (Ford, Dodge, Sloan, Kettering, Mott, etc.), petroleum (Rockefeller, Flagler, Archbold, etc.) For each of those megafortunes, there were hundreds of others whose possessors were merely very rich, not Forbes-400 rich.

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In his post this morning on Liberals, Conservatives, and Tax Fairness, Peter Wehner writes,

Liberals are correct about this: income inequality has increased over recent decades. The task of conservatives is to give a full and fair picture of income gaps in America, to explain what is behind it, and to point out the injustice of the left’s remedies and the degree to which their proposals represent a radical departure from America’s ideals.

I could hardly agree more, and agree that his excellent article in National Affairs, “How to Think About Inequality,” is a great place to start.

I would add one more reason why income inequality has grown in recent decades, and it’s not a small one: technology. Whenever a major new technology develops, it causes a marked and sudden inflorescence of new fortunes that greatly exceed the old fortunes. This happened with railroads (Vanderbilt, Gould, Harriman, Hill, etc.), steel (Carnegie, Phipps, Frick, Schwab, etc.), automobiles (Ford, Dodge, Sloan, Kettering, Mott, etc.), petroleum (Rockefeller, Flagler, Archbold, etc.) For each of those megafortunes, there were hundreds of others whose possessors were merely very rich, not Forbes-400 rich.

The microprocessor is the most profound technology since the steam engine and has, therefore, created an inflorescence of fortunes such as has never been seen before. Of the 400 people on the Forbes List for 2011, no fewer than 48 of them are categorized as having fortunes based on “technology.” Many other fortunes on the list, such as those of the Walton family, which founded Walmart, would not have been possible without the microprocessor. And again, for every one of these billion dollar new fortunes, there are dozens of multi-million dollar ones and million dollar ones. The wealth creation caused by the microprocessor is astonishing.

And these new fortunes can arise with amazing speed. Instagram, which developed a photo-sharing technology, was founded in October 2010, and was bought this month for $1 billion. The buyer was Facebook, which was founded in 2004. Facebook’s principal stockholder, Mark Zuckerberg, who is all of 27 years old, is worth $17.5 billion, according to Forbes. He will be a lot richer still when Facebook’s IPO launches soon.

This process, inevitably, causes income inequality to widen. To suppress the process, i.e., to prevent the creation of these great new fortunes, would be to suppress wealth creation itself, economic idiocy of the highest order. No one is one dime the poorer because the likes of Bill Gates, Mark Zuckerberg, and Michael Dell have become multi-billionaires in the last few years. We are all richer thanks to them. (That includes me, who is writing this on a brand new Dell computer that works great. Thanks, Mike!)

And while we should certainly take the issue of income equality seriously, I’m not at all sure we should take President Obama’s remedy du jour—the Buffett Rule—seriously at all. It’s nothing but an attempt to double the tax on capital gains in the name of “fairness,” the most subjective term in the American political vocabulary. I like John Hinderaker’s suggestion on Powerline:

So how about if the GOP responds to any legislation incorporating the Buffett Rule by seeing the Democrats their demagoguery and raising them with a couple of demagogic proposals of their own, in the form of proposed amendments? The Republicans could say, sure, we’ll go along with the Buffett Rule if you Democrats will agree to the Reynolds Tax, a 50 percent surtax on the increased incomes of former government officials when they move into the private sector, working for the same companies they once regulated. Or Republicans could offer an amendment incorporating the Clooney Rule, based on the fact that actors and actresses are such advocates of higher taxes: a new, 80 percent tax rate on all income in excess of $1 million earned by acting in any film or theatrical production. Or they could counter with the K Street Rule, an 80 percent tax on all income in excess of $1 million earned by lobbying. Or the Ambulance Chaser Tax, an 80 percent levy on all lawyer contingent fee income in excess of 10 percent of a recovery. (That one would provoke howling from coast to coast, from one of the Democrats’ prime constituencies.)

Conservatives should treat the Buffett Rule with the contempt it deserves.

 

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Liberals, Conservatives and Tax Fairness

In defending President Obama’s effort to make as the centerpiece of his campaign the so-called Buffett Rule — which would require anyone earning at least $1 million a year to pay at least 30 percent of his income in taxes — Jason Furman, deputy director of Obama’s National Economic Council, said, “Our goal is to have a progressive tax system.”

Furman added that the tax was never intended “to bring the deficit down and the debt under control” (contradicting a past claim made by the president). The goal, according to Furman, is to establish “a basic issue of tax fairness.”

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In defending President Obama’s effort to make as the centerpiece of his campaign the so-called Buffett Rule — which would require anyone earning at least $1 million a year to pay at least 30 percent of his income in taxes — Jason Furman, deputy director of Obama’s National Economic Council, said, “Our goal is to have a progressive tax system.”

Furman added that the tax was never intended “to bring the deficit down and the debt under control” (contradicting a past claim made by the president). The goal, according to Furman, is to establish “a basic issue of tax fairness.”

Let’s take Furman’s claims in order, starting with the goal of a progressive tax system.  According to the CBO, the top 1 percent of earners pay 40 percent of all federal taxes, compared to less than 20 percent in the 1970s. And today, according to research by the OECD, income taxes in America are the most progressive among the rich nations of the world. As Stephen Moore has observed, the “richest 10 percent of Americans shoulder a higher share of their country’s income-tax burden than do the richest 10 percent in every other industrialized nation, including socialist Sweden.”

Second, the United States now has the top corporate tax rate in the world, having recently passed Japan (and once again placing America ahead of socialist Sweden).

Third, middle-class workers on average pay just under 15 percent of their income in federal taxes while the richest 0.1 percent pay almost twice that rate (26 percent). The Buffett Rule applies to the exceedingly small number of individuals who make most of their money from capital gains, which are taxed at a lower rate than ordinary income in order to encourage savings and investment and because that income has already been taxed as corporate income. It’s reasonable to assume that The Buffett Rule is, in the words of the Wall Street Journal, “really nothing more than a … way for Mr. Obama to justify doubling the capital gains and dividend tax rate to 30 percent from 15 percent today.”

As for the “basic issue of tax fairness:” This is a recurrent theme for Obama. In a 2008 debate between Obama and Hillary Clinton, ABC’s Charles Gibson asked Obama why he would support raising capital-gains taxes given the historical record of government’s losing net revenue as a result. “Well, Charlie, what I’ve said is that I would look at raising the capital-gains tax for purposes of fairness,” Obama replied. This moment revealed that Obama isn’t simply or even primarily interested in raising taxes for economic reasons (e.g., raising revenues or spurring growth). He sees taxes through a moral prism, as an instrument to advance “fairness,” which he takes to mean leveling higher taxes on wealthy Americans in order to decrease income inequality. The president really does favor, in his words, “spreading the wealth around.”

This debate goes to the core of what separates progressives and conservatives. The former are drawn to the concept of equality of results while the latter are far more committed to equality of opportunity. And for liberals, the problem of income inequality has to do with the rich whereas for conservatives, the problem is not wealth but persistent poverty. As Robert Beschel and I argue in this National Affairs essay, “the right way to deal with income inequality is not by punishing the rich, but by doing more to help the poor become richer, chiefly by increasing their social capital. This means not simply strengthening the bonds of trust and mutual respect among citizens, but also equipping Americans — especially the poor — with the skills, values, and habits that will allow them to succeed in a modern, free society.”

Liberals are correct about this: income inequality has increased over recent decades. The task of conservatives is to give a full and fair picture of income gaps in America, to explain what is behind it, and to point out the injustice of the left’s remedies and the degree to which their proposals represent a radical departure from America’s ideals.

But more is required than simply that. Social mobility, which is the central moral promise of American economic life, has been the traditional alternative to economic egalitarianism. But the truth is that whether one judges by intragenerational mobility (meaning movement within or between income brackets and social classes within an individual’s lifetime) or intergenerational mobility (movement within or between income brackets and social classes occurring from one generation to the next), the United States is less mobile than it should be. Many European countries, for example, now have as much social mobility as, and more opportunity than, the United States. Today, a child’s future depends more on parental income in America than it does in Canada and Europe.

It would therefore be a mistake for conservatives to ignore the issues of social mobility and income inequality. They couldn’t even if they wanted to. The divide between rich and poor in America will be a focal point of this election. This is an instance, then, when the left is forcing the conservative movement to grapple with an issue it might otherwise ignore. (When things are working right, liberalism and conservatism focus attention and spur creative thinking on topics each movement is largely indifferent to.) The challenge for conservatives is to offer up a comprehensive social agenda in the face of America’s deep cultural and structural problems. Assembling such a platform is a hugely complicated task. But doing so, and translating good ideas into policy, would make America a more just, decent, and less divided society.

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Bruce Springsteen’s Brilliant Disguise

Bruce Springsteen is a fantastic musician. But he should stick to music rather than interviews in which he offers social commentary. Take Springsteen’s Rolling Stone interview with Jon Stewart, in which Springsteen complains about the level of greed at the top of the financial industry, lavishes praise on the Occupy Wall Street movement, and laments income inequality in America. “You cannot have a social contract with the enormous income disparity — you’re going to slice the country down the middle. It’s not going to hold.”

Perhaps the first thing to point out is that Springsteen’s estimated to be worth $200 million, meaning The Boss is doing more than his fair share to contribute to income inequality in America. (He probably ranks in the top 100th of the top one percent.)

As for the substantive issues surrounding income inequality, I agree with Springsteen that wide disparities in income and living standards can pose a danger to our social well-being. But the issue is far more complicated than he acknowledges. A National Affairs essay I co-authored points out that (a) income taxes in America are the most progressive among the rich nations in the world; (b) inequality is driven in part by the growing work-force participation rate of women; (c) federal old-age entitlement programs have become less progressive (which argues for means-testing Social Security and Medicare, a policy that is fiercely rejected by liberals); and (d) one of the quickest ways to increased income equality is a severe recession (since severe recessions destroy capital, which hurts top income earners more than average workers).

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Bruce Springsteen is a fantastic musician. But he should stick to music rather than interviews in which he offers social commentary. Take Springsteen’s Rolling Stone interview with Jon Stewart, in which Springsteen complains about the level of greed at the top of the financial industry, lavishes praise on the Occupy Wall Street movement, and laments income inequality in America. “You cannot have a social contract with the enormous income disparity — you’re going to slice the country down the middle. It’s not going to hold.”

Perhaps the first thing to point out is that Springsteen’s estimated to be worth $200 million, meaning The Boss is doing more than his fair share to contribute to income inequality in America. (He probably ranks in the top 100th of the top one percent.)

As for the substantive issues surrounding income inequality, I agree with Springsteen that wide disparities in income and living standards can pose a danger to our social well-being. But the issue is far more complicated than he acknowledges. A National Affairs essay I co-authored points out that (a) income taxes in America are the most progressive among the rich nations in the world; (b) inequality is driven in part by the growing work-force participation rate of women; (c) federal old-age entitlement programs have become less progressive (which argues for means-testing Social Security and Medicare, a policy that is fiercely rejected by liberals); and (d) one of the quickest ways to increased income equality is a severe recession (since severe recessions destroy capital, which hurts top income earners more than average workers).

Another factor has contributed to income inequality. In their book The Winner-Take-All Society, economists Robert Frank and Philip Cook argue that certain markets are defined by the concentration of wealth in the hands of a few top performers. The winner-take-all model has come to dominate a number of professional sectors, including sports, art, acting, and … music.

Oh, and one other thing. In his interview with Stewart, Springsteen laments the fact that “nuanced political dialogue or creative expression seems like it’s been hamstrung by the decay of political speech and it’s infantilized our national discourse.” This lamentation comes from a fellow who in 2003 told a crowd at Fed Ex field, “It’s time to impeach the president [George W. Bush]” and in a 2007 Rolling Stone interview, when asked how the Bush years would be remembered, answered,

Many parts will be remembered with the same degree of shame as the Japanese internment camps are remembered — illegal wiretapping, rendition, the abuse of prisoners, cutting back our civil rights, no habeas corpus. I don’t think most people thought they’d ever see the country move far enough to the right to see those things happen here. And I don’t believe those are things that strengthen us. The moral authority to stand up and say, ‘We are the Americans,” is invaluable. It’s been deeply damaged, and it’s going to take quite a while to repair that damage, if we can. This will be remembered as a low point in American history — as simple as that.

People are going to go, “Was everybody sleeping?” But people get frightened, they get crazy. You wonder where political hysteria can take you–I think we’ve tasted some of that.

All I want to do is be one of the guys that says, “When that stuff was going down, I threw my hat in the ring and tried to stand on what I felt was the right side of history.” What can a poor boy do, except play in a rock & roll band?

Yes indeed. What can a $200 million poor boy from New Jersey do in the face of impeachable offenses, Japanese-style internment camp shame, no habeas corpus, a low point in American history, and of course the loss of nuanced political dialogue? And what’s he supposed to do when the politician he backed to the hilt (Barack Obama) becomes president and continues many of the policies he denounced, as well as increasing drone strikes that kill innocent people and justifying the targeted killing of American citizens overseas?

I understand that there is a mythology that has grown up around Springsteen; to many of his fans he’s a Voice of Conscience and a musician whom we should take very, very seriously. It’s just that sometimes the jarring contradictions in Springsteen — the fantastically rich rock star bemoaning income inequality while presenting himself as just a blue-collar rock-and-roller from Jersey; the man who longs for nuanced political discourse while reciting shallow left-wing talking points — makes you want to look hard and look twice and wonder if it’s all just a brilliant disguise.

 

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Income Inequality in America

In the Spring issue of National Affairs, I’ve co-authored (with Robert Beschel) an essay, “How to Think About Inequality.”

The essay argues that while income inequality has never before been central to American politics, this year the divide between rich and poor promises to be a focal point. From there, the essay looks at the state of income inequality in America; its roots; and the role public policy has played in the gap between the top and bottom income earners in America. The essay concludes with reflections on income inequality and justice and sketches out the broad contours of what an “opportunity society” might look like.

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In the Spring issue of National Affairs, I’ve co-authored (with Robert Beschel) an essay, “How to Think About Inequality.”

The essay argues that while income inequality has never before been central to American politics, this year the divide between rich and poor promises to be a focal point. From there, the essay looks at the state of income inequality in America; its roots; and the role public policy has played in the gap between the top and bottom income earners in America. The essay concludes with reflections on income inequality and justice and sketches out the broad contours of what an “opportunity society” might look like.

Here’s how we put it:

Whether conservatives like it or not, income inequality is now a pressing issue in American politics — one that must be confronted, and soon. Part of that effort will require combating prevalent misperceptions about inequality with facts — about the true extent of income gaps in America, and about the overall levels of prosperity enjoyed by our citizens. This effort will also require highlighting the injustice of the left’s suggested remedies for income inequality, and the degree to which those proposals represent a radical departure from America’s ideals and traditions. Most important, conservatives will need to offer solutions to the genuine problems obscured by the fuss over inequality — namely, the decline of social mobility and the real plight of the nation’s poor.

For those interested in reading more, the essay can be found here.

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