9 steps for solving income inequality -- and why we need to be talking about them

Tim Smeeding, a professor of public affairs and economics at Institute for Research on Poverty at the University of Wisconsin – Madison, has a few ideas on how to solve income inequality in the US.

Lane Kenworthy, a sociology professor at UC San Diego, posted Smeeding’s ideas on her blog recently.

The idea is pretty simple: wealth redistribution is necessary in order to reduce inequality. This isn’t a new idea — it’s the ideology of left-wing politics. But it’s still worth talking about what that actually looks like. In America, it looks like these nine bullet points:

  1. Tax appreciated assets when inherited or transferred inter-vivos.
  2. Raise income tax rates on capital income — capital gains and dividends — to levels just below labour, e.g. maximum rate at true current marginal tax rate or 30%. And curtail practices of defining earnings as capital income, e.g. “carried interest” provisions.
  3. Reduce political rents: close tax loopholes that benefit mainly the wealthy (e.g. cap on deductions for employer-provided health insurance); turn deductions that benefit the richest into credits, many refundable, to benefit lower- and middle-income families; allow drug purchases at “best price” rates, not market rates, for Medicare; get rid of oil and gas exploration tax subsidies; limit and phase out agricultural subsidies.
  4. Use tax revenue to improve public infrastructure (including internet).
  5. Improve college prep classes and college counseling for students.
  6. More and better apprenticeships (get employers involved).
  7. Raise the minimum wage to $US10 per hour, index it, and enforce labour laws (e.g. on scheduling).
  8. Universal child allowance at $US2,500 per child, refundable if this is more than income taxes owed, and separate from the EITC.
  9. Profit sharing among all long-term (full year or more) employees.

The problem with nearly all of these solutions is that they are politically infeasible. This is nothing but the fantasy of an academic paid to think about poverty all day.

In an email exchange with Business Insider, Smeeding said that he thinks the $US2500 tax credit for children is probably the most likely, but the whole list is fairly impractical. “The more powerful the foe the less likely it will be to have a change,” he wrote.

But for this very reason, it’s important to talk about these things. “Politically unfeasible” and “not a good idea” are two different things.

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