Three Ways to Reduce Inequality

Regular readers know that while I am worried about rising inequality in America, I doubt that anyone really knows what to do about it. In an op-ed today, Larry Summers has three suggestions:

First, government must not facilitate increases in inequality by rewarding the wealthy with special concessions. Where governments dispose of assets or allocate licenses, preference should be on the use of auctions to which all have access. Where government provides implicit or explicit insurance, premiums should be based on the market rather than in consultation with the affected industry. Government’s general posture should be standing up for capitalism rather than for well-connected capitalists.

Well, that was pretty vague, and seems to me to have limited relevance, but by all means wealthy corporations and individuals should have to pay for whatever the government gives them.

Second, there is scope for pro-fairness, pro-growth tax reform. The moment when more great fortunes are being created and the federal deficit is growing is hardly the time for the estate tax to be eviscerated. And there is no reason tax changes in a period of sharply rising inequality should reinforce the trends in pretax incomes produced by the marketplace.

Yes, lets raise the estate tax. But what the rest of this means I do not know. I suggest taxing capital gains as income. Or, if that would be too much of a burden on people saving for retirement, we could cap the amount of capital gains taxed at the lower rate, at, say, $100,000 a year.

Third, the public sector must ensure greater equity in areas of the most fundamental importance. It will always be the case in a market economy that some will have mansions, art, etc. More troubling is that middle-class students’ ability to attend college has been seriously compromised by increasing tuitions and sharp cutbacks at public universities, and that, over the past generation, a gap has opened between the life expectancy of the affluent and the ordinary.

Yes, subsidies for universities, and even more for community colleges, are an excellent way to help the poor.

I would add a fourth suggestion: real national health insurance, financed through progressive taxation.

All of this, though, would only nibble around the edge of the growing disparity between billionaires and the rest of us. But maybe that wouldn't matter so much if the rest of us had subsidized education and free health care.