Inequality of what, exactly? The Buffet Rule and "Fairness"
A friend recently sent me this Wall Street Journal opinion piece, entitled “The Real Causes of Income Inequality.” The authors make some valid points, but also draw some misleading conclusions. My main reaction to the article was frustration—with the authors, with conservative media more broadly, but also with Obama and the liberal narrative on inequality. Allow me to explain.
The authors’ central objective is to refute the argument that inequality has increased because the wealthy have not “paid their fair share” in taxes. Attacking this logic makes perfect sense, as this loaded phrase has become a political rallying cry for Obama during his push for the Buffet Rule (the administration is even pushing a #fairshare hashtag on Twitter). Moreover, this criticism is not only understandable from a political perspective, but also quite justified from an economic perspective, as the authors are correct to observe that raising taxes on the wealthy would not be a silver-bullet solution to addressing inequality.
Most of the causes of growing inequality run deeper than the tax code: a woefully inadequate educational system, an economic shift away from low-skill labor, and a decline in union membership are all examples of long-term trends that have negatively impacted the middle and lower classes. Yes, capital gains rates play a role; wealthy investors have been able to compound their profits while CEOs take away record earnings through stock options and other forms of “non-income” income. That being said, raising more government revenue through the Buffet Rule would not do much to help address the structural flaws in our economy that have undermined social mobility and ravaged the middle class. Not only would the returns be relatively marginal (some $50 billion over 10 years), but as long as corporate special interests maintain disproportionate influence in our government, it seems unlikely that those revenues will be directed towards education, labor protections, health care, or other guarantors of social welfare.
While I agree with some of the arguments advanced by these authors—inequality has resulted more from changes to the nature of our economy than our tax code—I could not disagree more with their conclusions. Befitting their position as Wall Street Journal contributors, these two authors conclude that inequality is essentially “natural,” and that we should thus not worry about reducing it.
Admittedly, some level of inequality is inevitable. Some people will be more successful in their economic pursuits than others, whether from luck or from skill. This is simple mathematics; there will always be a distribution of talent centered on an average. Not everyone can be “the best” at what they do. As long as we live in a world of private property and profit incentives, wealth will never be completely equal. Nor should it be.
While this assessment is reasonable in the abstract, it ignores the true injustice that plagues America; an inequality of opportunity. In a fair society, everyone will not end up equally wealthy, but each person should have an equal chance to be successful. The combustible Newt Gingrich may have actually made this point best while on the campaign stump in Florida. During one event, which I happened to catch on CNN, Gingrich rallied the troops against Obama’s “socialist” agenda by emphasizing that the constitution guarantees the right to the pursuit of happiness, not to happiness itself. The implication, of course, is that free enterprise provides a means to pursue happiness, while Obama’s “radical” agenda seeks to guarantee happiness for everyone through government welfare programs.
The problem with our society today is that millions of people, by virtue of their socioeconomic conditions, are denied the same ability to “pursue happiness” that is afforded to members of the upper class. The statistics detailing the rising income inequality in America have been widely cited during the past year, but the less frequently referenced data on social mobility are frankly much more disturbing. A recent piece in the New York Times summarizes some of the recent research on social mobility, finding that Americans are now less likely to climb up the social ladder than our counterparts in Western Europe and Canada. Sixty-two percent of those born into the top fifth of the income bracket will remain within the top two fifths, while sixty-five percent of Americans born into the bottom fifth of the bracket will remain in the bottom two fifths. Even conservatives are beginning to realize that our American Dream is rapidly fading to black.
What, precisely, are the reasons for this decline in social mobility? The answer is undoubtedly complex, and far beyond the scope of this blog post. My point here is merely that we should be focused on answering this question, rather than deriding the critics of income inequality as slackers who are just after government handouts. It is for this reason that a particular passage in this article struck a nerve with me. The authors write:
Inequality is a natural result of the expansion of liberty and the development of new technology and new products. Henry Ford, Andrew Carnegie, Sam Walton and Bill Gates caused the income distribution to become more uneven, but they enriched the world. To vilify success and the rewards it garners is an assault not just on capitalism but on liberty itself. As Will and Ariel Durant observed in "The Lessons of History" (1968), "freedom and equality are sworn and everlasting enemies, and when one prevails the other dies . . . to check the growth of inequality, liberty must be sacrificed."
This sentiment is representative of the larger conservative narrative on inequality. Ever since Mitt Romney attacked the “politics of envy,” the Right has attempted to portray Obama as a president who “vilifies success.” Obama’s defense of the Buffet Rule, as articulated by conservative pundits, goes something like this: we must tax the wealthy, because it is unfair that they have done so well! They call Obama a “class warrior” who demonizes the rich. This is, of course, a dramatic over-simplification of the liberal argument. Certainly, eliminating all inequality in wealth would require some assault on “liberty” (read: the right to keep “my money”). But creating equality of opportunity—making the “free market” truly neutral and open for all parties—would be not only consistent with, but integral to, the defense of liberty.
Why then, you might ask, am I frustrated with Obama? Because his campaign for the Buffet Rule has played directly into this conservative counter-narrative! Rather than focusing on “investing in the middle class”—the central theme of his state of the union—he has trumpeted a policy that is easily branded as “punishing the upper class.” Of course, he can justify his proposal in different terms; his proposal is simply an attempt to compensate for loopholes that give the wealthy an unfair advantage when they file their tax returns. This justification, however, does little to counter the Republican spin.
Obama hopes that the Buffet Rule benefits from unique circumstances; polling data show that most Americans support the idea. But tax increases are always controversial in American politics. While most Americans are frustrated that people like Mitt Romney can get away with paying a 14 percent tax rate, they are also hesitant to vote for a “tax and spend” liberal that would impose costs on “job creators.” Focusing his campaign on the Buffet Rule also distracts from the positive aspects of Obama’s “rebuild the middle class” agenda, leaving voters wondering what specific solutions the president can offer to create jobs and revive the economy. Equality is a much less promising prospect if it entails bringing everyone down the lowest common denominator, rather than raising everyone upwards.
The Buffet Rule is a useful proposal. Indeed, it is common sense; there is no reason that millionaires should be paying a lower rate than middle class Americans. On the other hand, it is problematic that Obama is making the issue central to his campaign, rather than focusing on a positive agenda to rebuild the middle class and create sustainable foundations for social mobility and growth. In the long run, Obama’s strategy may actually play into the conservative “class warrior” rhetoric, distracting the public from the legitimate structural issues that are producing inequality. I hope that Obama can maintain control of the narrative—and not lose sight of his broader agenda—as the campaign progresses.
 In reality, Obama has said: “Look, I want folks to get rich in this country … I think it’s wonderful when people are successful. That’s part of the American dream.” http://www.nytimes.com/2012/04/11/us/politics/obama-to-make-case-for-buffett-rule.html.