We Must Redistribute Income

I am sure the right-wingers will scream about this piece. But any fair reading should tell them that Reich is correct.

We Must Redistribute Income


Robert Reich, the secretary of labor in the Clinton administration, is Chancellor's professor of public policy at the University of California, Berkeley.

DECEMBER 4, 2013

"Redistribution" has become a dirty word, conjuring up worthy "makers" forced to hand over hard-earned income to undeserving "takers." But as low-wage work proliferates in America, so-called takers are working as hard if not harder than anyone else, often at more than one job. Yet they're still not making it because the twin forces of globalization and technological change have reduced their bargaining power and undermined their economic standing, while bestowing ever greater benefits on a comparative few with the right education and connections (and whose parents are often best able to secure these advantages for them).

By cutting subsidies, breaks and deductions that benefit the 1 percent who've reaped the economy's gains, tax revenues can help poor workers.
Better education and training for those on the losing end is critically important but will only go so far. The number of losers is growing so quickly, and so much of the economies’ winnings are going to a small group at the top -- since the recovery began, 95 percent of the gains have gone to the richest 1 percent -- that without some redistribution, the losers are likely to react in ways that could hurt the economy. They’ll demand protection from global markets they believe are taking away good jobs, and even from certain technological advances that threaten to displace them (rather than smash the machines, as did England’s 19th-century Luddites, they’ll seek regulations that preserve the old jobs). They may fall prey to demagogues on the right or left who offer convenient scapegoats for their frustrations.

One way we already redistribute is through the Earned Income Tax Credit, a wage subsidy for the working poor, which, at about $60 billion a year, is the nation's largest anti-poverty program. It’s like a reverse income tax -- larger at the bottom of the wage scale (now around $3,000 for incomes around $20,000) and gradually tapering off as incomes rise (vanishing at around $35,000). The subsidy should be enlarged and extended further up the wage scale before tapering off.

How to pay for this? By cutting subsidies and special tax breaks for the oil and gas industries, big agribusiness, military contractors, hedge-fund and private-equity partners, and Wall Street banks. And by capping individual tax deductions (deductions are the economic equivalent of government subsidies) for gold-plated health care plans, lavish business junkets and interest on giant mortgages. In other words, we can finance much of this redistribution to the working poor by ending unnecessary redistributions to the wealthy.