Friday, March 27, 2015

GOP Plan For Reducing Inequality Is A Plan For Increasing Inequality

Many Americans have become concerned about rising inequality.  Therefore, it makes sense for politicians to claim that have a plan for reducing inequality.  Even Republicans have jumped on this bandwagon.  Most Americans do not read the details of their proposals but those who do study their plans for reducing inequality have concluded that they will actually increase inequality.  This short article by John Cassidy points out a few of the ways in which GOP budget proposals will actually increase inequality.  We can't expect a leopard to change its spots.

Paul Ryan's plan to end the estate tax is one of the more egregious proposals made by the leopards who refuse to change their spots.  Ryan argues that the estate tax hurts small business people and farmers.  He gets away with this because most Americans don't know that the first $5.4 million of taxable assets for married couples is excluded from the estate tax.  Ryan's plan only benefits the wealthiest households in America.  Of course, Ryan knows about the $5.4 million exclusion, and so do most households that benefit from the exclusion.  Ryan gets away with his charade only because most Americans are not aware of the exclusion.   They also don't know that stocks, which have appreciated in value, can be passed on to heirs tax free.  That is, they do not have to pay a tax on the capital gain.  They inherit the stocks at their current market value and only have to pay a future tax on the gains over that value when they are sold.

Many Americans, including most Republicans, believe that social mobility and access to higher education are correlated.  Access to higher education, however, is also correlated with the cost of higher education.  That is why the Pell Grant program, which provides subsidies to low income Americans, was passed into law.  The Republican budget proposal reduces the subsidy from the Pell Grant program.  This is consistent with the behavior of Republican governors who have been cutting back state contributions to their state university systems.  That passes on more of the cost for higher education to students and their families.  That is one of the reasons why student debt in America exceeds the debt owed on credit cards or auto loans.  Mortgage debt is the only category of debt that exceeds the debt on student loans. 

It is difficult to make substantial changes in the ways that market incomes are determined.  Market income inequality has been growing in most western economies.  The major difference between the US and other western nations is that spending on social welfare programs in the US is much lower than it is in other rich countries.  Consequently, net income inequality, which reflects the contributions of social welfare programs, is substantially higher in the US than it is in other rich nations.  Consequently, one would expect that the Republican Party, given its new concern about income inequality, would want to bring spending on social welfare programs in the US closer to those in other rich nations.  The Republican Party has not changed its spots.  Over two thirds of the spending cuts in their budget proposal are realized by cuts in social welfare programs.

Rich nations are very different from poor nations.  Income inequality is typically much lower in rich nations because their citizens are better educated and their governments are less corrupted than those in most poor nations.  One could make a similar comparison between states in the US.  The low income states in the US have higher income inequality,  weaker educational systems, and more corrupt state governments.  They are also the states that are dominated by the Republican Party.  There is a reason why the leopard does not change its spots, and why the chances that the US moves closer to the ways in which first world nations function is a growing concern to the rest of the nation and even to our partners in other rich countries.

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