Must-Read: Laura Tyson: What Policies Enhance Economic Growth and Distributional Equity?

Laura Tyson: What Policies Enhance Economic Growth and Distributional Equity?:

Inequality of market income before taxes and transfer payments in the US is similar to that in many other developed countries–including those with egalitarian reputations like Sweden and Norway. Britain and even Germany have higher inequality of income before taxes and transfers than the US. Among developed countries, the US does have the most unequal distribution of disposable income after taxes and transfer payments… not because the US has the least progressive tax system… [but] the US has the least generous and progressive transfer system…. Over the last 30 years, US economic policy aggravated rather than ameliorated income inequality. Both taxes and transfers became less progressive as market-income inequality widened…. The US needs a more progressive and redistributive tax and transfer system…. To combat market-income inequality, the US also needs faster economic growth to boost the pace of job creation and reduce unemployment…. In his inequality speech, Obama reiterated several proposals to accelerate growth: increasing exports, reforming the corporate tax code, and investing more in infrastructure, R&D, and education. These proposals are both growth-enhancing and equity-enhancing. Yet Congressional approval is unlikely, and overall fiscal policy remains strongly contractionary…. Obama also called for an increase in the minimum wage to combat income inequality…