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Right Turn
Posted at 09:15 AM ET, 11/18/2011

Paul Ryan vs. CBO on economic inequality

Whenever there is a major economic debate going on, Rep. Paul Ryan (R- Wis.) is at the center of it, setting forth in understandable terms the conservative position. He’s done that again in response to a Congressional Budget Office report on income inequality.

Yesterday he put out a lengthy report. The essence of the report is summarized on the House Budget Committee Web site:

•The question for policymakers is not how best to redistribute a shrinking economic pie. The focus ought to be on increasing living standards, expanding the pie of economic opportunity, and promoting upward mobility for all.
•Conventional wisdom on government’s role in inequality often has it backwards: tax reforms have resulted in a more progressive federal income tax; government transfer payments have become less progressive (due in large part to growing entitlement payments to wealthier seniors).
•Rather than further divide Americans, there is growing bipartisan consensus to target corporate welfare, to income-adjust entitlement programs, and to reform the tax code by removing loopholes and lowering barriers to growth.

Ryan argues that since the government achieves greater income equality through the tax code and programs such as Social Security, Medicare and Medicaid, it would behoove those clamoring for greater redistribution to work to shore up those entitlement programs.

In addition, Ryan makes the point that the CBO’s findings will be misconstrued so long as we incorrectly assume that it is the same people at the top and the bottom. In fact, people and families move up over time into higher-income groups for a variety of reasons (e.g. completing college). “This is an important distinction, as considerable empirical evidence has made clear that there is a significant amount of movement across income quintiles over time — in other words, there is a lot of income mobility in the U.S. economy.” The reason this is critical is that efforts to mandate equality of outcome can impede mobility. Ryan concludes that “the goal should be to expand the economic pie for all groups, while making sure that lower- and middle-income households are enjoying the gains, then policymakers must be mindful of the trade-offs between policies that enhance the redistributive power of government versus policies that promote economic growth.” That means reforming entitlement programs, enacting pro-growth tax reform, streamlining job training programs, supporting school vouchers to improve economic opportunities for the poor and getting rid of corporate welfare (“an inequality that is based on political influence and bureaucratic favoritism”).

Ryan followed up his report with a piece in the Investor’s Business Daily. He takes on the premises of the report:

Some have implied that this reduction in government income redistribution occurred as a result of large tax cuts for the wealthy and savage cuts to transfer programs for the poor. But that’s not what you find when you read the CBO report. In fact, the opposite is closer to the truth.
First, over the period studied, federal income taxes actually became more progressive — including a spike in the progressivity of the tax code after 1986, which was the last time Congress enacted fundamental tax reform.
Lowering tax rates while eliminating shelters that are used overwhelmingly by upper-income taxpayers incidentally results in a more progressive federal income tax, but the more important point is that it creates the kind of economic growth that allows all income groups to prosper.
Second, as Social Security and Medicare grew in size, the distribution of government transfer payments became less progressive, causing a reduction in the share of transfers received by lower-income households.

Once again, Ryan argues that the findings support an effort to reform and improve transfer payments and facilitate upward mobility. “The most destructive path we can take is to focus on equalizing outcomes through redistribution instead of equalizing opportunities by reducing barriers to growth.Of the few countries that have seen decreasing inequality over the past thirty years, one of them, Greece, is in the midst of a severe debt crisis and is teetering on the edge of economic collapse. This underscores the point that increased equality does not always mean better economic outcomes for all.”

The GOP presidential candidates, with the exception of Rick Santorum, haven’t talked much about poverty, income inequality and economic mobility. They should, provided they can present cogent arguments that are grounded in conservative values. Fortunately, Ryan has done the legwork for them.

By  |  09:15 AM ET, 11/18/2011

Categories:  Economy, Conservative movement

 
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