In my original post on Obama and starve-the-beast, I referenced this Yglesias item from a week or so ago - which offered, I think, an illuminating look at the roots of progressive thinking about taxation and income inequality. Drawing on this Lane Kenworthy post from last year, which considered the relationship between taxation, spending, and income inequality in developed countries, Yglesias wrote:
... if you look around the one at what it is countries do to mitigate income inequality, nobody is substantially equalizing things through the tax system, but many countries are substantially equalizing things on the spending side ... Not that progressive taxation is a bad thing, or meaningless in the contribution it makes, but clearly insofar as direct public policy interventions (as opposed to things like wider distribution of educational attainment) are going to reduce inequality, it needs to be done on the spending side. Now this raises the question how do you get the spending side to do more? Is it by "means testing" existing programs and creating new small-bore "targeted" programs aimed at the neediest? Well, not really ...for inequality reduction, it is the quantity of taxes rather than the progressivity of the tax system that matters most. Affluent countries that achieve substantial inequality reduction do so with tax systems that are large but no more progressive than ours.
As readers of Grand New Party know, one of the biggest things that separates my views on domestic policy from what I think it's fair to call the conservative mainstream is a concern about socioeconomic stratification (and, more exactly, its impact on socioeconomic mobility), and a belief that welfare-state spending should provide a safety net and promote upward mobility. What separates my views from progressives like Matt, on the other hand, is a belief that we should be able to pursue this goal without having the government swallow an ever-larger share of GDP. Of course the easiest way to reduce stratification is just to dramatically increase "the quantity of taxes" and let government spending do the rest - but if we're trying to strike a balance between liberty and equality, rather than just shrugging our shoulders and embracing a little more soft despotism and a little less voluntary association, then the idea of a means-tested and targeted welfare state looks like something worth pursuing.
Obviously, this kind of "small-government egalitarianism", to borrow Edward Glaeser's apposite phrase, isn't going to achieve the levels of equality, economic and otherwise, that prevail in small, ethnically-homogeneous social democracies. But that doesn't bother me: I don't want what Denmark has; I just want policies that do a bit more to mitigate what Clive Crook calls the present "stickiness" of wealth and poverty in America - and I don't think it's implausible to imagine this happening within a welfare state that's no bigger than the one we have now. Look at this chart, for instance, which Matt borrowed from Kenworthy:
Yes, inequality reduction tends to go up with government revenue. But the countries are more scattered than the straight line indicates: Look at Australia, for instance, way over there on the left, taking only slightly more in taxes than the U.S. does at present, but doing a lot more than we do to mitigate inequality. (It's probably not a coincidence that Australia has been way out ahead of most of the developed world when it comes to means-testing.) There's no inherent reason, it seems to me, why the United States couldn't hold its position as the lowest-taxed country on the chart, while targeting and means-testing its way up the y-axis a bit. Small-government egalitarianism hasn't been tried and found wanting; it's just seemed too small-government-y for liberals, and a bit too egalitarian-sounding for many conservatives, and thus been left untried.
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