Equality Time


Not so many years ago, I thought we'd heard the last from real live policy makers who wanted to redistribute income just to make the affluent worse off. From about 1984 on, the levelers of the left kept quiet—or they cloaked their desire to pull down the successful in a rhetoric of compassion for the poor.

I thought they'd disappeared, that their arguments had been discredited, that they'd figured out that Americans don't hate the rich. I was wrong.

The impulse to punish the rich never went away. The old leftists just hid out among the "New Democrats," camouflaging themselves amid the talk of welfare reform, middle-class tax cuts, and investing in America. And now they're back to their old tricks—bemoaning "growing inequality" and berating people who make $100,000 a year.

Bill Clinton's long-awaited economic plan doesn't just break his promise of a middle-class tax cut, it jettisons his solemn pledge to bring Americans together. Faced with an economy he doesn't understand and a budget deficit he can't master without unpopular cuts in entitlements, the president has declared war on the affluent. David Duke blames blacks for America's troubles. Bill Clinton blames "the rich "

He should know better. His advisers do know better. A mere six days before the State of the Union address, Secretary of Labor Robert Reich told CNN's Larry King that growing inequality is "not just the recession….It's not just the tax structure." He then said we should raise taxes on families making $200,000 a year, "the rich, who have had a tremendous ride over the 1980s….they're the only ones whose incomes went up and their taxes went down."

Such is the logic of the Clinton administration. Its devotion to the leftist gospel of progressive taxation ignores both the evidence that current tax rates maximize revenue from high earners and, even more blatantly, the evidence Reich himself likes to cite about what is really happening to incomes in America.

Consider the income data. If we ignore the considerable effects of income mobility—the "poor" in 1980 aren't the same people as the "poor" in 1985 or 1990, and some may even be among the "rich"—there is some truth to the statement that the "rich are getting richer." But what is happening is a lot more precise than that demagogic proclamation. And it didn't start with Reagan's tax cuts.

From at least 1963 on, if you divide full-time working men ages 25 to 54 by income, you find that real hourly wages for those in the bottom half of incomes are slowly creeping downward and those in the top half are slowly creeping upward. The downward drift at the bottom accelerates in the 1970s.

"The rich" aren't getting richer. The educated and skilled are. That's the trend behind the trend. It shows up in the data once the early baby boomers start to settle down: The payoff to higher education began in 1978, just when my 12th-grade psychology teacher was showing us studies proving that college doesn't pay financially.

Whether the trend is good news or bad news depends on how you feel about the market spontaneously rewarding brains over brawn and whether you value income equality for its own sake. Economists Kevin M. Murphy of the University of Chicago and Finis Welch of Texas A&M note in a paper presented at the American Economic Association meetings in January, "Four years ago the Wall Street Journal splashed the good news across its front page that college pays more than ever before—the evidence was that wages of college graduates were high and rising relative to wages of high school graduates; four weeks ago Newsweek bemoaned increasing inequality, pointing to the low and falling wages of high school graduates relative to college graduates."

During the 1980s, the biggest factor making household incomes unequal was the feminist revolution. In 1963, high-income men had low-income wives, if their wives worked at all; a stay-at-home wife (or low-paid working dilettante) was a rich man's perquisite. Not until about 1979 did the wives of men in the top fourth of the income distribution make as much as wives of men in the bottom fourth. But by 1990, they averaged 30 percent more.

Unleashing educated women on the work force meant the rich got richer. That was terribly unfair to less educated men, especially those who got competed out of jobs. If Clinton is serious about undoing the unfairness of the '80s, he ought to start by redistributing these valuable female assets more equitably.

We already levy a special tax—the so-called marriage penalty—on working wives who earn as much as their husbands. It deters some marriages but few working women. So more drastic action is called for. Maybe educated women could pay back their student loans by marrying uneducated men or, better yet, staying out of the work force altogether. We could pay smart women not to work, just as we pay farmers not to grow crops.

Such are the absurdities of punishing productive people for their productivity. And that is, at bottom, what Clintonomics is all about. People who have invested in themselves, in their ability to earn a living, will have more of their incomes taken away so politicians can redistribute it to people who have invested in lobbyists.

The Clintonites like to say we have an "investment deficit" because the federal government doesn't spend enough of GNP on roads, bridges, mass transit, and education. That's a dubious claim—looking at real dollars rather than percentages, federal outlays for non-defense capital investment went up by 50 percent during the '80s. But even if we grant the administration its "investment deficit," the problem isn't that the federal government lacks money. It's that most of the federal budget is consumed by interest payments and open-ended entitlements that transfer money from productive people to unproductive people.

It is in fact true that middle-class Americans got hit with whopping tax increases during the '80s, despite the Reagan tax cuts. What nobody wants to remind us of, however, is what exactly those tax hikes did: bail out Social Security, a program that takes money from those who work and gives it to those who don't.

Social Security excluding Medicare consumes 23 percent of the federal budget, more even than the defense budget. And unlike defense, Social Security is growing; it will require further tax increases to stay solvent. As long as Bill Clinton won't cut Social Security benefits across the board—by holding down cost-of-living adjustments or extending the retirement age for future beneficiaries—he is implicated in both past and future tax hikes.

The 1981 tax cuts in no way made the middle class worse off. To act as though they did is to betray either ignorance or bad faith. And neither Clinton nor his economic team is ignorant.