Paul Ryan’s solution to inequality helps the rich, does nothing for poor

The Plum Line - The Washington Post

Yesterday Paul Ryan released a very serious looking report entitled: “A deeper look at inequality.” Ryan’s effort — a rebuttal to that recent CBO report on growing inequality that got so much attention — was applauded by conservatives as an important contribution to the debate.

Since Ryan has a widespread reputation as a serious fiscal thinker, I thought I’d ask Tim Smeeding, an expert on inequality at the University of Wisconsin, to evaluate his report.

Smeeding’s verdict: Ryan’s effort is only “half serious,” fails to prove its argument about inequality, and doesn’t offer any policy prescriptions that would fix the problem as Ryan himself defines it.

Smeeding focused on several core Ryan arguments that are central to his overall case. First, Ryan claims critics are wrong to push for tax hikes on the rich, arguing the tax system has grown more progressive in recent years. “The share of the federal tax burden borne by the top 1 percent increased dramatically,” Ryan writes.

But Smeeding says this is a typical fallacy committed by those who oppose progressive taxation. Even if it’s true that the tax burden of top earners has gone up, that’s because their incomes have gone up, and have in fact gone up at a faster rate than their tax rate, meaning they now pay a smaller percentage of their overall income in taxes.

“At the very top, income doubled or tripled in the time period he’s talking about. Of course their taxes went up,” Smeeding says. “But their taxes increased by much less than their share of total income. Their after tax income grew by more than their pre-tax income.”

Ryan claims the real problem exacerbating inequality is not income disparity, but the lack of mobility of those at the bottom. Smeeding agrees with Ryan that mobility is key. But Ryan then argues that rather than try to promote equality through redistributive taxation, we should instead “promote upward mobility, increase broadly shared economic growth, and ensure that more and more Americans are able to freely earn their success.”

Smeeding, however, rejects this as a false choice. He says we can simultaneously make the tax system more progressive while also pursuing policies that enhance mobility. Indeed, Smeeding argues that those goals are two sides of the same policy coin — they are linked. The goal of raising taxes on the rich isn’t merely to promote equality by redistributing wealth. Rather, it’s about generating more revenue to invest in policies that enhance the mobility Ryan hopes to achieve.

Smeeding adds that there are no policy prescriptions in Ryan’s report that would actually enhance mobility.

“How do you increase mobility at the bottom? You provide low income families the tools to compete in a 21st Century economy,” Smeeding says. “Create revenue to invest in the mobility of kids from poorer backgrounds — improve early childhood education, improve schools, improve chances of success, lower the cost of college. He misses the whole point about mobility, which is about increasing educational and economic opportunity.”