Saturday, May 16, 2015

Income Inequality: Problem or Pretext?

Writing at a blog with the unlikely name Library of Economics and Liberty, Scott Sumner poses an interesting question. Hat tip to RealClearPolicy for the link.
Let's consider two hypotheses. One theory is that the recent interest in inequality reflects a sincere desire to help the sort of people who spend lots of money on cigarettes and lottery tickets. The other hypothesis is that it's just a smokescreen, and the real agenda is to enact higher tax rates, with the money going to increased spending on high speed rail, fixing JFK airport, and "education." (I use scare quotes because the evidence suggests that, at the margin, increased spending helps teachers unions more than students.) How could we tell which hypothesis is true?
Sumner observes we tax goods the poor purchase much more heavily than luxuries purchased by the wealthy. Ergo, we aren't really interested in improving the lot of the poor, our interest is raising revenue government can spend on liberals' pet projects. I expect he is mostly correct.