Conservatives must talk about income inequality

The rich are getting richer. And the gap between the rich and poor are widening. This is a simple fact--the rich are going up, but the middle class seems to be stagnating. Currently, liberals (like Sanders and Clinton) are talking about this. The conservatives, however, try to dodge the issue. Here is the thing, though: We shouldn't doge the issue because there are conservative solutions. 

Liberals favor a top down solution. Soak the rich--you will shrink the wealth gap and fix the issue. You bring the rich down. But this is illogical: why punish someone because they simply have more money? Typically, wealthy people are wealthy because they are productive, not simply because they inherited it as many assume. To tax the rich to close the gap would simply punish, and not promote, productivity. This, in turn, would reduce economic growth, reduce investment, and reduce the wellbeing of the average citizen. What conservatives must do is talk about a bottom up approach. 

A bottom up approach preaches the opposite agenda: instead of bring the rich down, we bring the poor up. We need to increase upward mobility so that the poor can become rich; we need to shrink the gap without punishing productivity; we need to fix this issue without hurting the economy. There are a few things conservatives can, and should, propose to fix the issue. 

1. Earned income tax credits

Conservatives already do support expanding the earned income tax credit, or EITC. And it is one of the few issues where Paul Ryan and President Obama can actually agree. Both of them have forwarded plans to expand EITC in order to help the poor. EITC is the most successful government program ever created and has been successful in reducing poverty and increasing income mobility. When the liberal Center for Budget and Policy Priorities (here), the conservative Heritage Foundation (here), the liberal Brookings Institution (link above), and the conservative American Enterprise Institute (here) all urge for expansion of the EITC, we can conclude that it probably works. 

Academic research confirms this: EITC reduces poverty and inequality. A $1000 in the EITC reduces poverty 9.4%, increases employment 7.3%, and reduce inequality according to the National Bureau of Economic Research. The EITC increases employment by increasing incentives to work; the program supplements income. And, presumably, someone who is not working has no income to be supplemented. The incentives to work means we increase productivity, which is key to increasing economic growth; and if the EITC increases economic growth and supplements the income of the poor, inequality will surely decrease. 

Other research has found that the majority of those receiving Earned Income Tax Credit change income brackets, suggesting that the policy may increase upward mobility. An older study found that those who lose their EITC eligibility usually lose it because of changes in income. This means that it leads to higher long-term wages and, in effect, increases upward mobility for those affected by the policy. 

Liberals counter to this is that we must increase the minimum wage in conjunction with expanding the Earned Income Tax Credit. However, the issue with this is that it reduces employment. It would likely have the opposite affect (meaning increased inequality) at worst, and no effect at best. This liberal bottom up solution would not work. 

A conservative supporting EITC would be supporting a sensible policy that reduces poverty, increases employment, and decreases inequality. 

2. Cut the taxes for the middle class--including the payroll tax

In some ways, it may be justified to eliminate the payroll tax. No one has proposed this, but it should be an easy vote getter: the paycheck you receive will no longer be reduced because the government took it from you; and, by the way, you will pay lower income taxes. The argument against this--especially reducing the payroll tax--is that we need it to fund programs like social security. But this argument is weak; we fund Medicaid, Medicare, the military, and education without a special tax for each one--we just use revenues in general! There is no reason we cannot do this for social security. Abolishing the payroll tax would increase incentives to work, primarily help the poor who need as much money as they can get, and give the economy a jolt of caffeine as it would inevitably increase consumption. It should also be noted that this, in conjunction with income supplements like the EITC, would make the poor a lot wealthier and increase their income security by helping them pay off debts from schooling and other bills. 

There is really no reason anyone--on the right or left--should oppose the policy outlined above. The only plausible reason is what we always get when a Republican argues for lower taxes: revenue. We would have to pay for it somehow! 

First, reduce the corporate tax rate. Yep, that would increase revenue. This isn't voodo economics like income taxes; chances are, reducing income taxes would also reduce revenue. But this is not true for corporate taxes. In Canada, lower corporate taxes seem to increase revenue; higher corporate taxes reduce revenue in the US, according to the Tax Foundation. It should also be noted that if we eliminated the corporate tax, revenue would probably increase. A study by the AEI has found the revenue maximizing--or the rate at which corporate taxes give us the most revenue--sits somewhere around 26%. The current corporate tax rate is about 39%. This means that revenue would increase dramatically if we reduce the corporate tax rate. Not only would this make up for some of the lost revenue above, but it would cause economic growth (see here and here). 

Second, close the loopholes for the rich. Pretty sure everyone agrees on that...

Third, stop giving out corporate welfare. Again, everyone agrees on that...

Fourth, stop subsidizing the oil and gas industry. Oh, and stop subsidizing renewable energy, too. 

There are a plethora of ways a candidate could increase revenues (by closing loopholes), or decrease costs (by decreasing subsidization) in order to pay for this pro-growth, pro-mobility, anti-inequality policy which would benefit the poor without harming the rich.

3. Fix the education system

This is a long-term solution. Fix the education system, dammit! Increasing the access (probably by reducing the cost) of higher education is the best way to reduce long-term inequality and increase mobility. EITC and lower taxes do this as it makes it easier to pay for, or pay off, student-loan debt. We would also need to improve K-12 public education, which I may discuss in a different post. 

Increasing availability of higher education is essential to increase mobility without harming the rich. Of course, many like Obama and Sanders want to give two free years of community college to the poor. Although this is a novel goal, this may have negative repercussions: as with all free commodities, people will overuse something if they think that it has no costs. The issue with this, however, is that it will lower the quality of education. Further, this may not even fully help the poor: wealthy kids would benefit from this, too. The poor targeting would further reduce the efficacy of the program. This is not a solution. 

The next few policy prescriptions are adapted from here. 

Colleges promise higher incomes and results. So if they fail, they should pay for it. Make colleges pay for the loans on which their students are forced to default, meaning that they are paying for the damages they have caused. This would create an incentive for better quality education so that their promises come true, and that their students can pay back the debt, and to force them to think of ways to reduce college tuition. 

Another way to pay for college should become an option, too. Allow colleges to say "we will take X percent of your income for X number of years" in order to pay for education instead of traditional education. This, again, would make it easier for students to pay (and increase their mobility) while making colleges liable for what happens to their students later in life. 

It should be noted that college has no better alternative. This means that colleges don't really have to worry about other ways of education arising, so they don't need to lower costs. This means conservatives should aim for ways to make it easier for alternative methods of education (apprenticeships, trade schools) to be more mainstream while continuing to provide high-paying jobs for future students of said fields. 

There are more solutions to this problem, but a conservative could easily fix our higher education system. 

Conclusion: Conservatives should--no, must--speak out in favor of reducing income inequality. Not only would it win them votes, but it would end the left's monopoly on the issue, making it harder for them to keep the "empathy" advantage over Republicans. Conservatives must focus on a bottom up solution rather than the liberal top down one. And the evidence suggests that conservative policies can and do work when it comes to reducing income inequality; the liberal solutions do more harm than good. We can turn this issue around; income inequality, if played correctly, could lead to a GOP landslide victory in 2016.