AP Photo. Scott Applewhite
Jared Bernstein, a former chief economist to Vice President Joe Biden, is a senior fellow at the Center on Budget and Policy Priorities and author of 'The Reconnection Agenda: Reuniting Growth and Prosperity'.

Here’s an excerpt from a recent interview of House Speaker Paul D. Ryan by CNBC’s John Harwood. The “distributional tables” they’re talking about are those like the one below, showing the impact of one of Ryan’s tax proposals by income group.

HARWOOD: On taxes, your predecessor as Ways and Means chair, Dave Camp, when he came out with a comprehensive tax reform a few years ago, he adopted as a principle that it was going to be distributionally neutral. It wasn’t going to advantage any group over the current system. Is that still a principle that you think is appropriate for the Republican tax agenda?

RYAN: So I do not like the idea of buying into these distributional tables. What you’re talking about is what we call static distribution. It’s a ridiculous notion. What it presumes is life in the economy is some fixed pie, and it’s not going to change. And it’s really up to government to redistribute the slices more equitably. That is not how the world works. That’s now how life works.

HARWOOD: And you’re not worried that those blue-collar Republican voters, who are voting in the primaries right now, are going to say, “Hey, wait a minute. You really taking care of people at the top more than you’re taking care of me.”

RYAN: I think most people don’t think, “John’s success comes at my expense.”  Or, “My success comes at your expense.”  People don’t think like that. People want to know the deck is fair. Bernie Sanders talks about that stuff. That’s not who we are.

Given the results you see below, I can certainly see why he doesn’t like such tables. The top 0.1 percent gets a tax cut of over $1 million, while middle income families end up with a couple of thousand dollars (you don’t see it due to scaling; the bottom fifth gets a cut of about $560). Some complain that it’s not fair to look at it this way; you should look at the tax cuts as a share of household income. Okay: that’s a 14 percent cut relative to pretax income for the richest group and a 4 percent cut for the middle class; 2 percent for the poorest fifth. The top fifth gets a cut that’s twice that of the middle fifth, as a share of their income.

In other words, this is a highly regressive tax plan. I was about to say that distributional results of the tax plans of today’s Republican candidates are even more skewed, but I was somewhat surprised to find that the Trump results look quite similar to those from the Ryan budget (see Table 5 here).

So what is Ryan saying here? At one level, I’d paraphrase thusly: “Maybe if people didn’t see how we’re trying to screw them, they wouldn’t be so pissed off.”

But let’s not be so cavalier and dig a bit deeper. He disparages the idea that it’s “up to government to redistribute the slices more equitably.” I disagree in the sense that progressive taxation or anti-poverty policy, like the EITC, should legitimately play that role, but I can at least see why he’d say that.

The problem is, however, and it’s a huge one: how do you get from “the government shouldn’t distribute more equitably” to “the government should distribute much more inequitably?!” These Republican tax plans seem to be solving the problem that rich people aren’t rich enough in America. And then they scratch their heads, bewildered why their electorate is abandoning their establishment.

I think he’s also probably wrong that a lot of people disbelieve the economy is “zero sum.” That is—and he’s right to cite Sen. Bernie Sanders’s unexpected rise in this context—there are many in the electorate who clearly do believe that the rise in inequality of income, wealth, and political power—evidenced by some people’s ability to tank the economy and then get a bailout—is, in fact, costing them. The “economy is rigged” is a very powerful meme these days.

In this regard, distributionally neutral tax plans are actually a low bar. What many would like to see is more progressive tax reform to offset some of the increase in pretax inequality. We can argue whether that’s a reasonable desire, but I find it very hard to argue a) what people really want is the opposite: more regressive tax plans, or b) families would be better off if they didn’t know the impact of tax proposals on their incomes.


Source: Tax Policy Center