Every dog will have its day, and so will every deadly sin. Over the past couple of weeks, envy has occupied center stage, thanks to a slew of new data from government agencies, academic researchers, and financial journalists. Among the choice nuggets in the data deluge:
- The Census Bureau reported that real median household income was flat during the past year at $51,017 -- and down 8.3 percent since 2007. In fact, it's back to where it was in 1990.
- Economist Emmanuel Saez estimated that the top 10 percent of U.S. families took in more than 50 percent of all income in 2012 -- the largest share in almost a century.
- Forbes released its updated roster of the richest Americans, who now possess a combined total of $2 trillion in wealth, up from $1.7 trillion in 2012.
Those numbers, and a host of others, gave partisans plenty of grist for their mills. When asked about the data by ABC News anchor George Stephanopoulos, President Obama attacked congressional Republicans. "The problem that we've got right now is you've got a portion of Congress who -- whose policies don't just wanna -- you know, leave things alone, they actually wanna accelerate these trends," said the president.
Conservatives, meanwhile, were happy to point out who was sitting in the Oval Office during the most recent string of income declines. "During the four years that marked President Barack Obama's first term in office, the real median income of American households dropped by $2,627 and the number of people in poverty increased by approximately 6,667,000," said Terence P. Jeffrey of CNSNews.com.
Stepping back from all the overheated accusations, it's possible to quibble with the data generally and the Census Bureau data in particular. Scott Winship of the Manhattan Institute for Policy Research predicted that most commentators trying to parse the data would overstate the problem. "These assessments will seriously underestimate the strength and steadiness of income growth experienced not only by the middle class but by the poor," he wrote.
But the basic picture is hard to challenge. Even Winship will grant that we've just lived through "a half-decade to forget, with the official income measure dropping by more and for longer than in previous recessions." And while long-term comparisons are more problematic, there is a fairly broad consensus among liberal and moderate observers that the last quarter-century (at least) has been pretty grim for non-rich Americans. "This isn't a lost decade for economic gains for Americans," concludes Neil Irwin of The Washington Post's Wonkblog. "It is a lost generation."
Many conservatives, of course, challenge that assessment. "The story of increasing income inequality is shaping up to be more a statistical fabrication than anything else," said William McBride of the Tax Foundation in a recent analysis of the Saez data. Scholars at the Cato Institute have been particularly outspoken on the subject. (See, for example, Michael Tanner's 2012 piece for the National Review Online, "The Income-Inequality Myth.")
I find the data about growing inequality to be convincing (as opposed to some of my readers, who, judging by my inbox, are less than fully persuaded). But let's set aside questions about the existence of inequality and explore what, if anything, might be done about that real or imagined problem. It's a useful exercise, if only to evaluate liberal prescriptions for redressing the growing gaps in income and wealth.
Suggested remedies often spring from arguments about the origins of inequality. But of course, those causes are just as uncertain as the existence of inequality in the first place. Even among those eager to combat inequality, questions about its causes remain unanswered. Most observers ultimately resort to a litany of likely suspects.
"A number of factors may help explain this increase in inequality," said Saez. For instance, "not only underlying technological changes but also the retreat of institutions developed during the New Deal and World War II -- such as progressive tax policies, powerful unions, corporate provision of health and retirement benefits, and changing social norms regarding pay inequality," he said.
The inclusion of tax policy in that list of causes is significant. So is its reappearance in Saez's shorter list of remedies. "We need to decide as a society whether this increase in income inequality is efficient and acceptable, and if not, what mix of institutional and tax reforms should be developed to counter it," said Saez. The remedies list, of course, is only shorter in word count, not policy scope, because "institutional reforms" might be used to describe a lengthy agenda.
Generally speaking, liberals are eager to redress inequality through progressive tax reform. "While far from the only cause of structural inequality, the tax code is a big part of it, and tax reform can change it," said Mark Schmitt of the Roosevelt Institute in a 2011 article for The New Republic.
The first step is to end the special treatment of capital gains and dividend income -- not just because the wealthy get more of their income in those forms, but because that preferential treatment is an incentive for increased inequality and risk. That's a reform that would both clean up the code and give us more of what we want.
Those are worthy and desirable reforms, as far as I'm concerned, chiefly in the name of fairness. But as a prescription for redressing inequality, they are less compelling. Sure, they might help, but they aren't likely to make a big difference. Moreover, if your principal goal is not redistribution of wealth from rich to poor but improvements in the fortunes of non-wealthy Americans, those tax reforms are probably a distraction.
Liberals are constantly in danger of fetishizing progressive taxation at the expense of progressive government. In a paper published earlier this year, UCLA law scholars Eric M. Zolt and Kirk J. Stark make almost exactly that point. In "Tax Reform and the American Middle Class," published in the Pepperdine Law Review, they begin with an odd juxtaposition of facts. "On the one hand, the American middle class is facing economic stagnation of historic proportions, but on the other hand, federal tax burdens on the middle class are at historically low levels," they said.
The long-term decline of tax burdens is often neglected in contemporary arguments about tax reform. Or, more precisely, some aspects of that complex phenomenon are neglected by the left while other aspects are ignored by the right. Conservatives generally complain that tax burdens are simply too high across the board, and they dismiss historical comparisons that might suggest otherwise. Liberals are eager to talk about declining tax rates for the very rich but less interested in acknowledging that lower tax burdens have been a middle-class phenomenon as well.
Zolt and Stark, by contrast, are very interested in the decline of middle-class tax burdens, if only because that decline hasn't done much to protect the middle class from its long-term economic stagnation. That suggests two things: (1) further middle-class tax relief might not be the answer to middle-class problems, and (2) real help for the middle class might actually come from a more robust social safety net -- even if that net must be funded with regressive taxes. As they wrote:
Our chief point is that the U.S. middle class may be better served by a fortification of key expenditure programs designed to alleviate economic insecurity, even if it means a less progressive tax system. We contend that this approach, which characterizes the tax/transfer systems of most major developed countries and serves as the basic framework of the U.S. Social Security system, may ultimately better serve the long-term well-being of the American middle class than the country's current reliance on a top-heavy tax system to fund a modest welfare state.
Strictly speaking, Zolt and Stark are answering a different question than many liberal champions of progressive tax reform. They are less interested in figuring out how to ameliorate inequality and more focused on how we might improve the fortunes of poor and middle-class Americans.
But there is a lot of overlap in those two tax projects. And while one -- reducing inequality -- has never been particularly salable in U.S. politics, the other -- saving the middle class -- has been consistently popular.
U.S. history is chock-full of impassioned tax debate, much of it focusing on inequality and even more on redistribution. But usually, the redistribution in question doesn't concern income or wealth, but the tax burden. Robin Hood arguments about taking from the rich and giving to the poor have been a great rallying cry -- but not for liberals. Rather, that kind of language has been the hallmark of conservative attacks on progressivity. For more than a century, Americans have endorsed progressive tax burdens and rate structures. But arguments for progressive taxation have generally focused on the allocation of fiscal burdens, not on the larger distribution of wealth. Progressivity has been used as an argument for remaking the revenue system, not American society.
There have been exceptions to that rule, most notably during the Great Depression. As I recount in my recent book, Their Fair Share: Taxing the Rich in the Age of FDR, Franklin Roosevelt was fond of vilifying the very rich and complaining about the "unfair advantage of the few." If any U.S. president ever believed in the fundamental reconstruction of U.S. class lines and social structures, it was FDR.
But even Roosevelt understood that the real gains in progressive government, as opposed to progressive taxation, were to be made on the spending side of the fiscal equation. As Zolt and Stark pointed out, Social Security was FDR's crowning achievement, or at least his most durable legacy. And it was built on the insight that progressive taxation was ultimately a secondary goal -- and one best subsumed to more pressing reforms on the spending side of the budget.
Perhaps the greatest tragedy of U.S. progressive politics in the 20th century has been its fixation on progressive taxation. Liberal fascination with keeping taxes progressive has prompted Democratic lawmakers to reject out of hand almost every form of broad-based consumption tax. In particular, Democratic politicians of the 1950s, 1960s, and 1970s resisted the global VAT revolution that took place on their watch. In doing so, they ended up with a tax system that had less revenue-producing capacity than those of many other nations and one that relied more on taxes ill-suited to a globalizing economy, especially the corporate income tax.
Ultimately, if you want to explain the relative anemia of the U.S. social safety net, you don't need to look much further than that Democratic misstep. Sure, Republicans have hobbled the welfare state, too. But ultimately, the weakness of U.S. social programs has been largely a function of missed opportunities and misplaced priorities on the left, not the right.