Some realistic solutions for income inequality
Jamie Dimon, the Wall Street banker, and Bernie Sanders, the socialist U.S. Senator, agree on something: Income inequality is a huge problem in the United States.
They are right. Even before the pandemic-fueled economic crisis, the problem was getting worse. The Census Bureau reported last fall that income inequality in the United States was the highest in the more than five decades it has tracked the data — and much higher than any European nation.
The matter won’t be joined this year; it’s of little concern to President Trump. Even though some of his working-class base suffers, he has convinced them that he’s on their side fighting cultural wars.
But if Democrats control the government next year, it’s unavoidable.
One aspect of the issue is elevated after the racial uprising following the killing of George Floyd in Minneapolis last month; black households earn only an average of 59 percent as much as white households.
With a plethora of proposals on income inequality, I turned to two of the most knowledgeable: Bob Greenstein, head of the Center for Budget and Policy Priorities and the most practical progressive champion of poor and working class Americans; and Michael Graetz, a Columbia law professor and former top tax official in the George H.W. Bush administration, who co-authored with Ian Shapiro a new book on economic insecurity, “The Wolf at the Door.”
What did I learn? For starters, don’t focus on the counterproductive, the illusory or the unattainable: protectionism which hurts workers, so-called opportunity zones which seem to help rich investors more than distraught communities, and a universal basic income.
A requisite to seriously address inequalities is a big tax increase. “In the absence of considerably more revenue,” says Greenstein, “I don’t see how big investments that we need will get enacted or sustained. Sooner or later we will get back into a big deficit reduction mode with a focus on cutting programs for people of modest means which will make inequality worse.”
Ideally, I’d prefer a progressive value added tax; politically it’s too difficult. Instead, most of the 2017 tax cuts should be repealed, increasing the individual and personal top rate, treating capital gains as ordinary income, restoring the estate tax for wealthy heirs to 2009 levels, and eliminating a host of loopholes. Given the shakiness of the of the economy, these probably would take effect several years down the road.
With resources, measures that would narrow the inequality gap include:
1) The working families relief act, led by Sens. Sherrod Brown (D-Ohio) and Michael Bennet (D-Colo.) and Dick Durbin (D-Ill.), would significantly expand the Earned Income Tax Credit (EITC). First crafted in the 1970s by Sen. Russell Long (D-La.), the EITC has grown into the government’s most effective anti-poverty program. It’s a refundable tax credit for the working poor. The benefits would be increased and extended to childless workers.
The working families relief act also would expand the $2,000-a-year child tax credit for working- and middle-class families and increase it for kids under six. Some conservative economists and politicians have embraced a few of these initiatives.
This bill “would reduce child poverty significantly and would help tens of millions of low and modest wage workers,” notes Greenstein. His policy center estimates it would help 43 million Americans, including 8 million African Americans, and lift as many as 10 million children out of poverty.
Raising the minimum wage is also on the list. The EITC is more effective, but the $7.25 an hour minimum wage hasn’t changed since 2009, and should be doubled in the next several years.
2) A universal adjustment assistance program. This would combine two relatively inefficient programs: trade adjustment assistance for those who have lost their jobs to foreign competition and unemployment insurance for those who are laid off.
“This would be a national program with coverage of part time workers and independent contractors and free lancers,” says Graetz. “It would avoid the race to the bottom of state plans, eliminate regressive funding and provide help for relocations of workers and retraining.”
3) Expansion of Obamacare. Both men agree the Affordable Care Act has lessened burdens on families but not by nearly enough. It has to be expanded, whether offering a public option or similarly a volunteer bottom up Medicare option starting at birth. This would pressure private insurance to offer more affordable plans.
4) Universal pre-K. Essential to reducing inequality is a considerable federal investment in child care and universal pre-K for 3- and 4-year-olds. Graetz writes: “For conservatives who often advocate trimming welfare rolls through work requirements for single mothers of young children, universal pre-K is a positive development. High child care costs are a barrier to work.”
Sanders would say this isn’t sufficient; Dimon might shudder at the dramatically enhanced public role.
But tens of millions of the poor and near poor would be better off.
Al Hunt is the former executive editor of Bloomberg News. He previously served as reporter, bureau chief and Washington editor for the Wall Street Journal. For almost a quarter century he wrote a column on politics for The Wall Street Journal, then the International New York Times and Bloomberg View. He hosts 2020 Politics War Room with James Carville. Follow him on Twitter @AlHuntDC.