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Paul Ryan: Inequality, Take Two

When last we heard from Rep. Paul Ryan (R., Wisc.) on the topic of income inequality, he was claiming, incorrectly, that the United States redeems its disproportionate income inequality, relative to western Europe, by offering greater equality of opportunity. Whoops! Now he's back for round two in an op-ed for Investor's Business Daily, claiming that the trouble with redistributive policies is that they don't favor the poor.

Ryan is right that the federal government's direct income redistribution (i.e., the combined effect of taxes and transfer payments) has become less progressive since 1979, as noted in the Congressional Budget Office's recent inequality report. In 1979 the government reduced inequality by 23 percent (as measured by the Gini index). Today (or rather, as of 2007, the most recent year for which data are available) it reduces inequality by 17 percent. Please note, as Ryan does not, that the net effect of federal taxes and benefits remains significantly progressive. It just isn't as progressive as it used to be. Government remains an effective tool for reducing income inequality.

But that isn't the main problem with Ryan's argument. The main problem is that Ryan wants to absolve taxation of any responsibility for this diminishment of progressivity and instead blame the inherently self-defeating nature of entitlement programs. To make this argument (parroted credulously by Washington Post blogger Jennifer Rubin), Ryan willfully distorts the truth.

"Over the period studied," Ryan writes, "federal income taxes actually became more progressive — including a spike in the progressivity of the tax code after 1986, which was the last time Congress enacted fundamental tax reform." The CBO report does indeed say that federal income taxes are "slightly more progressive" than they were in 1979. It doesn't credit the 1986 tax reform for the change. The 1986 tax reform did indeed, for a time, achieve greater progressivity with lower rates by eliminating tax breaks favoring the rich. But I don't see how you can argue (as Ryan does) that this progressive effect from 1986 has endured while simultaneously arguing that the tax code is once again so polluted with tax breaks for the rich that you could, today, again lower rates, eliminate special breaks, and achieve greater progressivity. In fact, the federal income tax is a smidgen more progressive not because effective tax rates are higher on the rich than they were in 1979--they're actually lower, just like you thought they were--but because effective tax rates are also lower for the middle class and the poor, including the "lucky duckies" (as the Wall Street Journal editpage charmingly dubbed them) deemed too poor to pay any income tax at all. The GOP (including, possibly, Ryan himself) would like to raise taxes on these freeloaders to larn 'em that guv'mint don't come free. The CBO has documented the relevant changes in effective taxes at different income levels elsewhere, and I'd be very surprised if Ryan were unaware of them.

Ryan says that federal income taxes are more progressive than they used to be, but he doesn't say that all federal taxes are more progressive than they used to be. He doesn't because he can't. When you combine all federal taxes, including the payroll tax (which started out regressive and has become more so), the capital gains tax, the corporate tax, etc., etc., then the federal tax system has become more regressive ... just like you thought it had. And that's before you also factor in the effects of state and local taxes, which also tend to be regressive.

On benefits, I'll take Ryan at his word that over time Social Security and Medicare have failed to make the totality of government benefits more progressive, because I don't know whether they have or not. I would merely point out that these programs don't exist to redistribute income but to provide security to people in old age, when they no longer have jobs and are much more likely to get sick. I would favor making beneficiaries at higher incomes pay more for these benefits through higher taxes (this already happens to some extent), but I don't think the supposedly non-progressive effect of Social Security and Medicare as currently configured is the devastating critique of the welfare state that Ryan imagine it to be. I do find myself wondering how Ryan neglected to mention that during this same 1979-2007 period the federal government "ended welfare as we know it," as Bill Clinton liked to say. Surely that had some impact on the redistributive effect of government benefits. Is Ryan saying that he opposes the 1996 welfare-reform law? I kind of doubt it.

Ryan also doesn't address the indirect impact of government on redistribution, but it hardly seems accidental that, as Vanderbilt political scientist Larry Bartels has pointed out, under Democratic presidents since 1948 the greatest income gains have been at the bottom of the income scale and tapered off as you went up, while under Republican presidents since 1948 the greatest income gains have been at the top and tapered off as you went down the income scale. This appears to be the result of a whole host of policies, including not only the distribution of taxes and benefits but also the government's stance toward unions, whether the minimum wage rises, the extent to which the government frets about inflation versus too-high interest rates, etc., etc.

To summarize: Government attempts to redistribute income are not futile. What's futile is Ryan's attempt to engage the topic of income inequality in a way that favors his antigovernment ideology. I'm surprised he's still at it.