Okay, Liberals: Let's Talk Inequality

I shouldn't have done it, but this week I read a piece by Harold Meyerson in the Washington Post, titled “Democrats' New Faith.” He's delighted that President Obama is finally doing something about inequality.

You know the standard Democratic narrative. Back in the good old days middle-class workers had good jobs at union wages. Then Reagan came and threw U.S. manufacturing jobs onto the scrap heap with his trickle-down economics. So economic inequality has increased as the middle-class has thinned out.

But now comes President Obama. He'd addressed inequality before, of course, but this time is different.

This time, he had a concrete proposal to diminish the shift from income derived from work to income derived from investment -- by raising the tax on capital gains and using the income to provide a tax credit to help working parents pay for child care.

Oh. So now our razor sharp liberal minds are mixing up ordinary investment income like dividends with gains on capital appreciation.

I slammed out a response to Meyerson's article on my blog Friday, and suggested seven reasons off the top of my head why the increase in inequality might have nothing to do with “income derived from investment.” But today let's address our liberal friends more gently. Let us ask the following question:

It is not possible, dear liberals, that the layers upon layers of government programs you have enacted over the past century have themselves contributed to “inequality?”

For instance, let us look at the marginal cost of getting off of welfare if you are, say, a single mother with two children. Here's a chart I have adapted from another article intThe Washington Post. I have augmented the chart from Gene Steuerle at blog.governmentwedeserve.org by adding a big red line.

The original image shows how welfare benefits change as a recipient increases her income from work. As you can see, the benefits start to ramp down pretty sharply once the recipient reaches about $15,000 in earnings.

That's where the dirty red line comes in. It shows what would happen to welfare benefits if the government strictly reduced benefits by 50 cents for each dollar of work income. When the top line that sits on the geological strata of benefits is parallel to my red line it means that the welfare recipient is experiencing a 50 percent marginal tax rate on her work income, due to the reduction in benefits. And that's not including any payroll taxes and income tax our recovering recipient would face.

Is it any wonder that since the Great Society programs of the 1960s low-income women don't marry and the men don't work, as Charles Murray wrote in Coming Apart? Why bother when you can get $25,000 for nothing and face a swingeing tax rate on any earnings from work?

And this mess is to be solved with a tax on “income from investment” and middle-class tax credits? Because inequality?

In reality, the process of “getting off welfare” is not as simple as a 50 percent marginal tax rate. That's because of welfare's mind-numbing complexity, e.g., at some point you have to get off Medicaid and switch to Obamacare and CHIP. Probably you don't, not until your welfare caseworker or a lovely Lois Lerner lookalike at the IRS comes after you. Boy, am I glad I'm not on welfare (because my Medicare isn't welfare. No siree).

Liberals used to hang their hats on helping the working stiff. Government programs, paid for by the rich, would cure the blight of poverty, they told us. Only it didn't.

Then they got blindsided by the success of Reaganism, and had to reinvent themselves as pragmatic centrists, traveling a Third Way between left and right. Now under President Obama they have veered hard left. Now we must all fight inequality.

In Sunday's Daily Telegraph Janet Daley is bemused by the sharp left turn from Britain's Labour Party and Barack Obama's Democratic Party. After Blair and Clinton it's back to “the spirit of the Left-wing True Believer” in Britain and the U.S. But left-wing politics always about another stupid slogan and another stupid government program.

Sci-fi writer John C. Wright calls these empty slogans “word fetishes,” a way of attributing mystical qualities to political catchphrases. It's not just “inequality.” It's Hope and Change, Change We Need, Hands Up Don't Shoot, Middle Class Economics.

OK. Everyone uses catchphrases: supply-side economics, Morning in America, compassionate conservatism, No Child Left Behind, Drill Baby Drill.

It all depends on whether you end up with the mob chanting your catchphrases as they bay for your blood, as in “there goes the Dirty Maximum” at the execution of Robespierre.

Do you really think, liberals, that your fight against inequality is based on any better science than Robespierre's fight for maximum prices?

Christopher Chantrill @chrischantrill runs the go-to site on US government finances, usgovernmentspending.com. Also see his American Manifesto and get his Road to the Middle Class.