Tim Smeeding knows more than virtually anyone about inequality and poverty in the United States and other rich nations. I asked him what he recommends to reduce income inequality. His response:
- Tax appreciated assets when inherited or transferred inter-vivos.
- Raise income tax rates on capital income — capital gains and dividends — to levels just below labor, e.g. maximum rate at true current marginal tax rate or 30%. And curtail practices of defining earnings as capital income, e.g. “carried interest” provisions.
- Reduce political rents: close tax loopholes that benefit mainly the wealthy (e.g. cap on deductions for employer-provided health insurance); turn deductions that benefit the richest into credits, many refundable, to benefit lower- and middle-income families; allow drug purchases at “best price” rates, not market rates, for Medicare; get rid of oil and gas exploration tax subsidies; limit and phase out agricultural subsidies.
- Use tax revenue to improve public infrastructure (including internet).
- Improve college prep classes and college counseling for students.
- More and better apprenticeships (get employers involved).
- Raise the minimum wage to $10 per hour, index it, and enforce labor laws (e.g. on scheduling).
- Universal child allowance at $2,500 per child, refundable if this is more than income taxes owed, and separate from the EITC.
- Profit sharing among all long-term (full year or more) employees.