Dealing With Poverty and Income Inequality

Under the Obama administration, income inequality has risen in this country as has the poverty rate.  It is a problem that if left unchecked could, as history has proven, lead to political instability in even the best of countries.  A plethora of ideas to address the issue spew forth from think tanks and the mouths of politicians on both ends of the political spectrum.

As far as this writer can discern, Leftist solutions are nothing short of socialist redistribution of wealth from the top to the bottom.  The extreme Right blames the bottom and leaves the top alone when they even recognize the existence of a problem.  Unfortunately, this polarization allows for populist demagogues like Donald Trump and Bernie Sanders to gain political popularity.

Any capitalist economic system will have winners and losers.  The problem arises when the “losers” cease to expect mobility upwards.  When that occurs, the population becomes susceptible to redistributionist solutions.  They also look for scapegoats and they are often those who achieved success.

Look at the Leftist solutions to income inequality and it may as well be a reading of Das Kapital by Karl Marx.  They propose, among other things:

  • make it easier to unionize workers;
  • reform intellectual property rights so that the masses benefit;
  • eliminate licensing barriers to certain occupations;
  • ease zoning restrictions to allow more low income housing;
  • early childhood education and universal pre-K;
  • massive infrastructure investment;
  • raise taxes on capital income;
  • close tax loopholes for the rich;
  • raise the minimum wage;
  • tax financial transactions, and;
  • long term employee profit sharing.

One can logically refute each and every one of their solutions, but the biggest argument against them is that they all deny individualism.

Instead, the goal of any good agenda in this area is to address income inequality by NOT taking down by the top earners, but to raise the bottom earners.  The number one goal of any good taxation system is to raise adequate government revenue.  We currently do not have that system in place.  Instead, we have reams of paper of tax codes filled with loopholes, credits, deductions and favors that not only fail to raise adequate revenue, but also attempt to socially engineer.

The Left’s solution is punitive taxation for success with the increased revenues diverted to lower earners.  A simpler taxation system would go a long way to alleviating the problem.  I laugh when Warren Buffett talks about his secretary’s tax rate compared to his.  Is anyone putting a gun to his head and telling him to hire accountants and lawyers to use every means necessary to lower his tax bill?  Of course not and he takes full advantage of the tax code.  If he is so guilt-ridden, then do a Form 1040 and leave it at that.  The rich liberals who cry about income inequality are hypocrites.

For the Right, the solution starts with accepting the fact that income inequality is very much real and a problem.  Some argue that it is actually a “good” thing and inevitable in a capitalist system.  But, not addressing the perception of lower earners that they lack the opportunity for upward mobility worsens the problem.  To many, the American dream no longer exists.  That belief must be reversed.

A perfect example is TARP and bank bailouts.  In this area, the gripes of the Tea Party and those of the more radical Occupy Wall Street movement actually intersected nicely.  Leaving aside the fact that OWS became a joke of disgusting defecation on police cars, a great opportunity was lost.  When in a capitalist system a player assumes excessive risk, that player must suffer the consequences.  TARP became a safety net borne on the backs of taxpayers.

In the aftermath, we codified the “too big to fail” philosophy with Frank-Dodd along with some other goodies thrown in there for the Left.  Today, the Left argues that big banks be broken up.  In 2009, the nascent Tea Party was arguing that the big banks should fail and be liquidated through an orderly process- bankruptcy- out of which would have risen better banks that assumed less risk.  Thus, that intersection of beliefs.

Instead, they concentrated on executive pay as if that was the reason banks were failing.  The solution of capping executive pay is a perfect illustration of how the Left views things collectively at the expense of the individual.  ALL executives are collectively thrown in the same boat ignorant of whether they were good or bad executives or had any responsibility in the financial crisis.  Certainly, the individuals who took bad risks did not deserve the compensation.

This illustrates the simplistic view and approach of the Left.  Want to bring up the income of lower earners?  Raise the minimum wage.  Or pass out more government benefits.

There are two causes of poverty and income inequality- one cultural and one economic.  Globalization is a genie that cannot be put back in the bottle.  Studies have shown that free trade agreements and a global market have decreased income inequality overall on a macroeconomic global level, but worsened the problem in developed countries.  Of course businesses have moved overseas because labor is cheaper, yet the Left’s solution is more of the root cause of those higher labor costs- more union organization.  Technology and innovation have also improved dramatically over the years.  Today, we produce more with greater efficiency.  Do we want to regress to the 1920’s and bring back employee assembly lines?

A major cultural cause of poverty and income inequality is the breakdown of the traditional family structure which was ushered in by the Left.  The Left can bury their heads in the sand and ignore the many studies showing that marriage and a two-parent family structure are the greatest impediment to poverty and the greatest means by which to achieve upward mobility.  Instead, they deny this reality then propose everything under the sun to essentially fortify the opposite.  Impending birth in the way of a job opportunity if you are single?  Easy solution- abort it.  Cannot afford child care and work?  Have the state provide it through universal pre-K.

Of course, the government cannot force people into marriage.  But neither should the government reward any individual for a bad choice.  Instead, the government must stop social engineering through taxation and regulation and reduce burdens on workers and employers which will open up those opportunities for upward economic mobility.

The solution starts with a simple, fair tax code.  It begins with ceasing corporate welfare through such things as the Import-Export Bank.  It begins with decreasing the regulatory burden on employers that costs the economy billions annually in costs passed on to consumers, individuals and families.  It begins with a corporate tax code designed to keep jobs in America.

It does not involve marching in the streets with pitchforks to the nearest branch of Bank of America or breaking the windows of Starbucks in Seattle.  It involves those on the Right to recognize there is a problem that needs to be addressed and those on the Left that their redistribution policies will never solve the problem.  Somewhere, saner heads must come together lest we end up with a President Sanders or a President Trump somewhere down the line.