From the editors at the Wall Street Journal, The Real Cure for Inequality:
Democrats focus on income inequality in part because it will always exist to some extent, and some statistic can always be found to show that some people are much richer than others. What really matters for a healthy democratic society, however, are economic opportunity and income mobility.
By that measure the faster growth and tight labor markets of the Trump years are finally lifting incomes for folks at the bottom after the slow-growth Obama years. The Obama policy mix, which Democrats want to return to only more so, put a priority on reducing inequality rather than increasing economic growth. But higher taxes, hyper-regulation and income redistribution resulted in slower growth and more inequality during the Obama Presidency. The Federal Reserve’s policy of lifting asset prices also favored wealthier Americans with financial assets rather than lower-income workers who received smaller wage gains.
With the major exception of misguided trade policy, the Trump economic policy mix has been targeted at increasing the pace of growth. The gains to workers that have resulted underscore that the best way to reduce inequality are faster growth and job creation that require employers to compete for employees.
This is a lesson for the left and those on the big-government right who want to use tax policy and subsidies to redistribute income to reduce inequality. Policies that hurt growth hurt lower-income workers the most.
Inequality is a red herring. It is far more difficult to measure in a meaningful way than most realize. Income or wealth, before tax or after tax, individuals or families, before transfer payments or after? The comparative time periods can make a huge difference; the changes between 1979 and 2007 are much different than 1989 through 2012. Changes in consumption power drops the difference between the upper quintile and lower quintiles substantially. Assortive mating from women rising in higher wage jobs may account for over a third of the change in inequality; higher income women tend to marry higher income men leading to a wider difference in household incomes. Is this bad?
Inequality does not measure the vast changes in quality of life. Our poorest have access to health care unavailable to the wealthiest a generation or more ago. Poor people have access to technologies unavailable to anyone a few decades ago. Relative poverty is much different than absolute poverty.
The mantra that the Trump tax cut of 2017 only benefits the wealthy simply does not stand up to objective criteria. The creation of Opportunity Zones from that bill focuses investment into poor census districts more effectively than previous efforts. The capping of SALT tax deductions (State and Local Taxes) to $10,000 has raised the ACTUAL (as opposed to the STATUTORY tax rate) taxes paid for many of the wealthiest tax payers, especially in the high tax states. The irony of New York’s Cuomo complaining about the higher taxes paid by the wealthy in HIS state is rich.
It was Obama who practiced trickle down economics, boosting asset prices through monetary policy rather than wages through economic growth. Inequality under Obama rose, under Trump it is dropping. This is unsurprising to anyone who sees lower unemployment and economic growth converging. Finding workers, particularly at the low end of the wage scale, is the most common complaint for business.
It only surprises those whose blind rage over anything Trump combined with their mistaken belief that inequality is “the defining challenge of our time” (Obama). If you prioritize inequality over growth you will have more inequality and less growth; if you prioritize growth over inequality you will have more growth and less inequality.
Taxes should be considered in the context of all friction costs. Deregulation also aids economic growth, but the costs of the trade war, the deficit and debt, and the uncertainty that any tax law will remain in effect long enough to plan by continues to be a burden on the economy.