Two From Paul Ryan

http://www.futureofcapitalism.com/2011/11/two-from-paul-ryan

James Pethokoukis has an interview with Paul Ryan: "our answer is upward mobility — not begrudging people who become successful, but making it easier for people to find success, to bring those rungs of the economic ladder within reach of people who've never scaled it before. Grow the pie versus redistribute slices of a shrinking pie. That's what our society has always prided itself on. That's the American system we've had...Instead of focusing on bringing the top down toward the bottom, let's focus on bringing the bottom up toward the top."

More: "Our tax system should not have as its primary, guiding principle redistribution. It should have growth as its primary principle so you can accelerate mobility. When you have a tax system aimed at redistribution and narrowing disparities, you end up slowing down growth and slowing down mobility."

Mr. Ryan's House Budget Committee has also put out a 17-page analysis (link via Politico Playbook) on income inequality. Highlights:

the distribution of government transfers has moved away from households in the lower part of the income scale. For instance, in 1979, households in the lowest income quintile received 54 percent of all transfer payments. In 2007, those households received just 36 percent of transfers.

This shift reflects a growth in programs that focus on the elderly population and are not for the most part income-adjusted, such as Social Security and Medicare. In other words, the structure of some of the nation's largest entitlement programs has decreased the share of government transfer payments going to lower-income households and directed an increasing share of government spending to wealthier seniors.

The Budget Committee paper has some good data on income mobility, too: "the National Tax Journal examined individual tax returns from 1996 to 2005 and found that about 58 percent of households that were in the lowest income quintile in year one had moved up to a higher income segment ten years later." And: "a study by economists at the Federal Reserve Bank of Minneapolis showed that 44 percent of families in the lowest income quintile in 2001 had moved up to a higher income point by 2007, while 34 percent of those in the highest income segment had moved down."

And there's some great stuff in there about how the data showing increasing income inequality may be skewed or inaccurate: "Northwestern University economist Robert Gordon believes that the official consumer price index (CPI) that is often used to calculate real income in inequality studies has a persistent upward bias. Reliance on CPI fails to account for the fact that many lower-income individuals consume a basket of goods whose prices have declined significantly over recent decades. ....according the Gordon, standard real income calculations understate real gains for the lower segments of the distribution by as much as 38 percent over this time period." And: "Christian Broda of the University of Chicago also finds that the prices of goods disproportionately consumed by lower-income households have been declining rapidly in recent years. Using a corrected price index to calculate growth in earnings, Broda and colleagues estimate that the lowest 10 percent have seen a 30 percent real wage gain from 1979 to 2005."

And there's also some great stuff about taxes: "In 1979, the top marginal federal tax rate was 70 percent, and the share of federal income taxes paid by the top 1 percent was 18.3 percent. By 2007, the top marginal federal tax rate had fallen to 35 percent – yet the share of federal income taxes paid by the top 1 percent was 39.5 percent. Put another way, over the period covered by the CBO's study, the top marginal federal tax rate was cut in half, and the share of taxes paid by the top 1 percent more than doubled."

Mr. Ryan's conclusion is that the way to deal with income inequality is through pro-growth tax reform and entitlement reform.

by Editor  |  Nov 18, 2011 at 10:41 am Related Topics:  Government Spending, Income Inequality, Politics, Taxes receive the latest by email: subscribe to the free futureofcapitalism.com mailing list