Facing Inequality

President Bush has finally mouthed the word. Now he should do something about the problem.

THERE WAS a flurry of excitement when President Bush allowed the words "global climate change" to escape his lips in his State of the Union address. He didn't propose any useful response to the problem, but somehow we were supposed to feel grateful that in his seventh year in office he finally had acknowledged the phenomenon's existence. Last week came a similar epiphany, when Mr. Bush went to Manhattan and acknowledged for the first time the reality of income inequality.

"The fact is that income inequality is real," Mr. Bush pronounced. Not only that, but "it's been rising for more than 25 years." The historical addendum no doubt was intended to insulate the president from any blame in the matter. But it has the opposite effect. If rising income inequality was already a problem when Mr. Bush took office, his regressive reshaping of the tax code becomes even less excusable.

Mr. Bush is right on his history. Post-tax income of the top fifth of households was 6.7 times higher than incomes of the bottom fifth 25 years ago; the multiple has risen to 9.8. That wouldn't be so terrible if everyone's incomes were rising at a healthy clip, but between 1980 and 2004 wages of the typical worker actually fell slightly, when adjusted for inflation. Mr. Bush says that "the reason is clear," which must come as alarming news to an army of economists who make their living debating the relative importance of globalization, technology and other factors. Mr. Bush's diagnosis -- "we have an economy that increasingly rewards education" -- leads to a useful prescription, namely, as he said, "strengthening public education."

But as everyone knows, that's a tall order, and one in which the federal government has only a modest say. The federal government could make college more accessible and expand access to Head Start and similar early-childhood programs, which would improve equality of opportunity. But as we argued in a series on inequality last year, there's also much the federal government could do to address the problem more directly. The federal mortgage-interest deduction, for example, overwhelmingly benefits top earners; so do tax incentives to promote retirement savings and (as Mr. Bush, to his credit, recently pointed out) health insurance. In 2004, for example, the richest one-tenth of households reaped 49 percent of the tax subsidies for IRAs, 401(k)s and other defined-contribution pensions. All of these tax benefits could be reformed, without being abolished, to tilt a bit less in the direction of the wealthy.

The government can't solve the problem of inequality by taking from the rich and giving to the poor, and it shouldn't try. If a tax system becomes too onerous for top earners, it discourages innovation, entrepreneurship and the economic growth on which everyone depends. But in an era when largely uncontrollable forces are pushing against equality and fairness, the government shouldn't be needlessly pushing in the same direction. This week Mr. Bush will insist in his proposed budget that all of his tax cuts be extended. Those have proved enormously more beneficial to the super-rich than to anyone else. Given the reality that Mr. Bush has at last taken note of, such a policy just makes no sense.