Josh Barro has a good article up at Bloomberg about why Republicans should rethink their fierce opposition to what they call government “redistribution” programs:
Liberals talk about booming incomes at the top while lower-income households barely see benefits from economic growth. Conservatives talk about a rising share of the population that depends on government benefits and a shrinking share that pays income tax.
Though the frames are different, these are descriptions of the same economic phenomenon: rising inequality of pre-tax incomes. But only liberals are advancing a semblance of an agenda to address it.
The main liberal reaction to this phenomenon is to call for progressive fiscal policy: higher taxes on the rich people who have benefited most from the last 30 years’ gains in gross domestic product to pay for programs that raise low- and middle-income people’s after-tax incomes. Obamacare, which raised taxes on the rich to fund a new health-care entitlement for the poor and middle class, is a key example of this agenda.
Liberals also advocate policies that are aimed at reducing pre-tax inequality: more subsidies for education, trade protection, industrial policy to support medium-skill jobs in manufacturing, easier unionization, minimum-wage increases, rent control.
All of these policies have a trade-off: in exchange for reducing income inequality, they are likely to reduce GDP growth. But some are better than others. Minimum-wage increases in the range being discussed in today’s political debates don’t seem to have significant negative impacts on employment or output. There is room for a significant increase in tax progressivity without (much of) a negative impact on GDP growth, especially if the reform is well-designed.
But the key problem in this debate isn’t’ that liberals’ ideas are bad, though many of them (especially on trade) are. It’s that conservatives have no serious proposals of their own on rising inequality.
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