Legal Commentary

The Big Progressive Project: Income Inequality

By Big Tent Democrat

Last night, President Obama said:

Two years after the worst recession most of us have ever known, the stock market has come roaring back. Corporate profits are up. The economy is growing again. But we have never measured progress by these yardsticks alone. We measure progress by the success of our people. By the jobs they can find and the quality of life those jobs offer. [. . .]

That’s the project the American people want us to work on. Together. We did that in December. Thanks to the tax cuts we passed, Americans’ paychecks are a little bigger today. Every business can write off the full cost of the new investments they make this year. These steps, taken by Democrats and Republicans, will grow the economy and add to the more than one million private sector jobs created last year.

(Emphasis supplied.) Obama posits that the tax cuts in The Deal will create jobs and spur economic growth. I think that in fact The Deal was a terrible decision that will retard economic growth over the medium and long term because it exacerbates the biggest economic problem we face, income inequality. Buttressing my view is, via DougJ, this Harvard Business Review article by Justin Fox:

The big rise in economic inequality over the past four decades is partly the result of impersonal economic forces — technological change, mostly — but political decisions have played a crucial role as well. Financial market deregulation, tax-code changes, and all manner of other policy choices in the have promoted inequality in the U.S., as Jacob S. Hacker and Paul Pierson demonstrated pretty convincingly in their 2010 book Winner-Take-All Politics. And similar moves were made in much of the rest of the world.

[. . .] Economist Mark Thoma put it well earlier this month:

There is an equivalent of a Laffer curve for inequality, but the variable of interest is economic growth rather than tax revenue. We know that a society with perfect equality does not grow at the fastest possible rate. When everyone gets an equal share of income, people lose the incentive to try and get ahead of others. We also know that a society where one person has almost everything while everyone else struggles to survive — the most unequal distribution of income imaginable — will not grow at the fastest possible rate either. Thus, the growth-maximizing level of inequality must lie somewhere between these two extremes.

Assuming we're near or have passed that growth-maximizing level of inequality, in the U.S. at least, the business community as a whole would be better off if the trend toward inequality slowed or reversed.

The Deal undermined the fight to lessen income inequality. Can Obama reverse it in 2 years? Last night he said:

if we truly care about our deficit, we simply cannot afford a permanent extension of the tax cuts for the wealthiest 2% of Americans. Before we take money away from our schools, or scholarships away from our students, we should ask millionaires to give up their tax break.

It’s not a matter of punishing their success. It’s about promoting America’s success.

Does he really mean it this time? After The Deal, one can only be skeptical. Here's hoping Obama shows some audacity on this.

Speaking for me only

Full post as published by TalkLeft on January 26, 2011 (boomark / email).