GLARING, AND growing, inequality of wealth and income is one of the most troubling issues facing the United States and other democratic, capitalist societies. So far, this threat to social stability and political legitimacy has proved as intractable as it is worrisome. The lawmaker and the party that devise an effective solution could deserve a grand electoral prize.
Which brings us to the anti-inequality package that Rep. Chris Van Hollen (D-Md.), the top Democrat on the House Budget Committee, unveiled last week in hopes of tilting federal fiscal policy toward the “99 percent” and, implicitly, reinvigorating his party’s message. Mr. Van Hollen’s “Action Plan to Grow the Paychecks of All, Not Just the Wealthy Few” is worth examining on its merits — and because it foreshadows some of the ideas and arguments that President Obama will put forward in his State of the Union address Tuesday.
The representative’s plan is more ambitious than what the White House has in mind. Over the next 10 years, he would use $1.2 trillion in loophole-closings and tax increases on the wealthiest 1 percent to fund an equal amount in tax breaks for households making less than $200,000. He would impose a 0.1 percent levy on financial transactions to raise revenue while discouraging market-distorting computerized trading and “churning” of accounts; on the tax-break side, Mr. Van Hollen would create a $1,000 per worker “paycheck bonus” credit, among others.
Mr. Van Hollen deserves praise for thinking big about a big issue and for taking aim at the tax code’s undue preferences for investment income — what he calls “making [money] off of money” — and the upward bias of credits and deductions more generally. A particularly intriguing point is his suggested tax incentive for companies to shift spending from executive bonuses to wage increases. It would be all too easy, of course, to note the many ways in which his plan might be politically unrealistic, starting with the fact that it hinges on getting the disputatious European Union to coordinate its financial transactions tax with Mr. Van Hollen’s proposed levy so as not to drive U.S. financial business abroad. Mr. Van Hollen is surely right, though, to insist that policy should reward production more and speculation less.
Though commendably deficit-neutral in its own terms, Mr. Van Hollen’s concept (like Mr. Obama’s) has a big drawback: It spends all of the revenue from politically difficult tax reforms on politically popular tax relief for the middle class. Despite recent cyclical improvements in the federal deficit, the structural debt remains unsustainable in the view of the Congressional Budget Office. And it can’t be addressed without at least some of the $1.2 trillion Mr. Van Hollen would tax from the rich and give to everyone else.
This is even harder to justify given that much of the benefit from Mr. Van Hollen’s proposal would flow to households that are decidedly not poor. Both substantively and symbolically, it’s a mistake to suggest that the United States can be made more egalitarian and more fiscally secure without asking anything of families making as much as $200,000 per year — nearly four times the median income. Government has a role to play in correcting skewed distribution of wealth and income, but its efforts should be focused on those who need help the most.