Reducing inequality: expand and improve public services

How do we boost the incomes of Americans in the lower half (or two-thirds) of the distribution? I’ve discussed what I think are some helpful and some probably-not-so-helpful proposals. But our focus shouldn’t be exclusively on income. The well-being of lower- and middle-class Americans can be improved markedly by enhanced provision of government services.

Service use (consumption) doesn’t show up in income statistics. But services matter for living standards. If I have two kids in a public school that spends about $10,000 per year per child, I’m receiving the equivalent of a government transfer of $20,000. Other public services and public spaces — health care, child care, policing, transportation, roads, parks, libraries, and so on — have the same property. So too does free time funded or mandated by government via holidays and paid parental leave.

When provided by government at little or no cost to users, these services are akin to a transfer given in equal dollar amounts to all individuals or households. Our tax system is roughly flat: households at different points in the income distribution pay approximately the same share of their market (pretransfer-pretax) income in taxes. But a flat tax rate means those with high incomes pay many more dollars in taxes than do poor households. If the value of the government services the rich and poor use is roughly the same in dollars, then the tax-services system overall is quite redistributive. Here’s a way to see this, using tax payment data for 2004 and hypothetical data for consumption of public services:

Some services charge user fees that are structured progressively; those with higher incomes pay more. This makes the tax-services system even more redistributive. Financial aid means this is true for public (and many private) colleges here in the U.S., though we could go much farther. In Denmark and Sweden, fees for child care are scaled according to household income.

Imagine an America in which high-quality public services raise the consumption floor to a high level: most citizens can put their kids in high-quality child care followed by good public schooling and affordable access to a good college; they have access to good health care throughout life; they can get to or near work on clean and efficient public transportation or roads with limited congestion; they enjoy clean and safe neighborhoods, parks, roads, museums, libraries, and other public spaces; they have low-cost access to information, communication, and entertainment via reliable high-speed broadband; they have four weeks of paid vacation each year, an additional week or so of paid sickness leave, and a year of paid family leave to care for a child or other needy relative. Even if the degree of income inequality were no less than today and we still had CEOs, financiers, and entertainers raking in tens or hundreds of millions of dollars in a single year, that society would be markedly less unequal than our current one.

It’s worth emphasizing that markets too boost the consumption floor. New technologies and consumer products — indoor plumbing, cars, air conditioning, cell phones, ipods, and many others — have eventually become affordable for even the least well-off, and in doing so they reduce inequality of living standards. But markets haven’t, and likely won’t, bring us affordability coupled with high quality in health care, education, child care, safety, and mass ground transportation. In these and other areas, government is needed.

The United States provides less in the way of public services than many other rich countries, but we nevertheless have a rich history here, from universal elementary and secondary education to the interstate highway system to the internet. There’s a legacy to build on, and good reason to do so.

3 thoughts on “Reducing inequality: expand and improve public services

  1. What seems hard to swallow is that all citizens obtain equal benefits of public services. Those in the underclass live a hand-to-mouth existence, don’t take trips to make full use of highways, don’t have time (or admission fees) to visit museums, don’t take advantage of library services, and in particular don’t enjoy the same “clean and safe neighborhoods” that those in other income quintiles do.

  2. Bob P.
    I think they would be able to do all these things if the public services the post cites were provided. But they aren’t and that may be a big reason why so many live “hand to mouth.”

  3. Bob P.

    You’re right that all citizens don’t get equal use of public services, but I’d say that museums, parks, and especially libraries are particularly suited to reducing inequality. Every public library I’ve ever been in serves a large population of homeless patrons, and most now provide internet access. I’d say that public libraries are particularly redistributive as they provide safe, quiet places to study, work, and learn; especially valuable for children growing up in poor areas. I’d also guess that most of the wealthy use them only rarely.

    Parks certainly provide quality of life benefits to everyone. Museums, because of entry fees may be less redistributive, but most have free days or other arrangements for low income patrons. I’d agree that public works aren’t all equally valuable to all members of society, but many of them are at least close to that, and some things such as library and telecommunications access are more useful for the less affluent, since the affluent will frequently pay for easier access to the same services.

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