The pundit class has spilled a lot of pixels about the so-called rich-poor “gap.” They spilled even more when the pup-tents started popping up in Zuccotti Park. But almost all of these gap-minders have failed to address the fact that there are two kinds of inequality. One kind matters and one doesn’t.
The inequality that matters is the kind that is the result of bad policies. These policies transfer resources from the poor and middle class to the rich — shrinking the economic pie. The great political scientist Mancur Olson called this “concentrated benefits, diffuse costs,” but most people call it crony capitalism. Great civilizations fall when rulers reward Takers at the expense of Makers.
Reducing the inequality that matters
You know that phonograph with the scratch right at the phrase “tax the rich”? Our “ten things” are a little different from that old song.
1. End corporate welfare: Bank bailouts. Agribusiness subsidies. Pork. You name it. Politicians are doling out corporate welfare at every level of government. (Think Solyndra.) One way to reduce inequality is to stop transferring wealth from taxpayers to Takers.
2. Roll back regulation: Excessive regulation makes goods and services more expensive for everyone and raises the costs of starting a small business. The big businesses love it because they can afford the regulations and they know that the regulations will keep out smaller competitors. Such policies deny poor people opportunities. Regulations are regressive. Let’s roll them back.
3. Close loopholes, flatten taxes: Our complicated tax code is designed so that it is easier for wealthier people to purchase the energies of CPAs who find loopholes. For the poor and middle class, tax lawyers may not be worth a nickel. Let’s flatten taxes and close loopholes. How about a 15% flat income tax and a 15% flat corporate tax? Let’s stop enriching IRS bureaucrats and H&R Block executives and start enriching all the people who serve customers better.
4. Raze America’s pyramids: Local boondoggles like light rail and sports arenas mean higher sales taxes. That burden falls disproportionately on the poor who pay for local sales tax increases whether or not they patronize the stadiums, visit the convention centers or ride the light-rail lines. States should forbid developers and sports owners from bilking municipal taxpayers. (Bureaucrats argue these boondoggles improve the local economy and ultimately benefit the poor. But they’re wrong.)
5. Means-test Medicare: Why should struggling young people have to fund the healthcare expenses of rich seniors in Boca Raton? Medicare requires just such transfers. We can start by means-testing Medicare or abolishing it altogether. Elderly people who cannot afford basic healthcare can get Medicaid — or better, a voucherized version of Medicaid.