Democrats' Debate: No Solution for Economic Inequality, No Interest in Economic Growth

Michael Barone
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Posted: Oct 20, 2015 12:01 AM
Democrats' Debate: No Solution for Economic Inequality, No Interest in Economic Growth
You may not have noticed, but Lincoln Chafee, the erstwhile Republican U.S. senator and Independent-turned-Democratic governor, had one penetrating comment at the Democrats' debate Tuesday night. "But let me just say this about income inequality," he said toward the end. "We've had a lot of talk over the last few minutes, hours or tens of minutes, but no one is saying how we're going to fix it."

Chafee offered no solution himself and showed his confusion about the issue by saying that inequality "all started with the Bush tax cuts that favored the wealthy." Actually, as my Washington Examiner colleague Timothy Carney has demonstrated, Bush's cuts actually made the tax system more progressive, with the highest 10 percent of earners paying a larger share of federal income taxes than before.

But every once in a while a pig sniffs out a truffle, and Chafee, after standing silently for tens of minutes, found one. The policies proffered by the others on the stage would do little or nothing to reduce income inequality, just like the increase in high-earner rates Obama got in 2013 (which no one mentioned).

Neither did anyone call for higher rates now, though on the stump Bernie Sanders has mentioned favorably the 90 percent high rate in place during the 1950s.

One possible reason is that when middle-income voters hear talk of a tax increase they assume it will fall on them. Another is that higher rates would hit many East and West Coast Democratic voters.

Another good reason, though not one appealing to the candidates, is that history shows that no matter how high rates go, top earners' effective tax rates aren't much higher than currently. And current rates are the most progressive in the advanced OECD countries. The Scandinavian countries praised by Sanders have value-added (meaning sales) taxes around 25 percent.

A recent study by Brookings economists William Gale, Melissa Kearney and former Obama budget director Peter Orszag concluded that raising the high rate to 50 percent and distributing all proceeds to the lowest-income 20 percent would have an "exceedingly modest" effect in reducing income inequality. In response to critics, they wrote that "no single policy within the realm of the politically feasible could in fact substantially offset the long-term, powerful trends in income inequality."

Democrats' other proposals would not make much difference either, such as Hillary Clinton's call for more spending on "early childhood education," despite repeated studies that it has no lasting effect, and "schools that meet needs," whatever that means.

Clinton, Sanders and Martin O'Malley called for "tuition-free college," echoing Barack Obama's free-junior-college proposal. But junior college is already free for most low-income students, and increases in government aid have produced administrative bloat. Which Clinton at least recognized, by calling for getting college costs down, without specifying how.

It's also worth asking what is progressive about a policy that forces taxpayers, many of whom lack the skills or inclination for college, to pay for the college costs of people who on average start off higher on the income ladder and may climb higher still.

Another favorite proposal was government-mandated paid family and medical leave. We need to join the rest of the advanced world on this, said Clinton, Sanders and O'Malley. And each called for a higher minimum wage ($15, said Sanders).

Naturally they avoided mentioning the costs -- the elimination of some jobs, closing of some businesses, price increases to consumers. Wal-Mart's self-imposed $10 minimum wage resulted in sharply reduced profits and may mean higher prices for consumers. Somebody has to pay for free stuff.

Moreover, most minimum-wage earners aren't sole household earners and aren't in low-income households. Paid family and medical leaves, presumably welcome to many, would cover only a few months of working lifetimes.

The Democrats' dirty little secret is that the inequality they complain of is most common in places where they have put policies like minimum wage increases and paid leave into place. California has the highest poverty rate (compared to living costs) in America, New York City the most economic inequality.

French economist Thomas Piketty, who advocates massive wealth redistribution, notes that inequality was reduced sharply in the first half of the 20th century -- by two world wars and a worldwide depression.

One thing you didn't hear the Democrats talk about was how to increase overall growth above the anemic Obama levels of 2 percent. Do they have anything to say about that?