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Hillary Clinton’s inequality plan has big problems

January 8, 2016

By James Pethokoukis

The U.S. presidential race has seen each party obsessed by one big issue. For Republicans, it’s immigration — or at least what Donald Trump is saying on a particular day about immigration. For Democrats, it’s income inequality. Hillary Clinton says we need to “reshuffle the deck” to give the middle-class a better deal. Bernie Sanders complains about a “rigged game” in favor of the rich.

The GOP front-runner’s solutions — a giant, impregnable wall on the southern border and mass deportation — have gotten plenty of scrutiny. The bipartisan wonk consensus is that they’re unworkable, if not ludicrous and counter to traditional American values. But Clinton’s inequality agenda, while certainly in the public policy mainstream, has big problems, too. Here are the three pillars of her plan — and why they fail:

1. Higher taxes on the rich. Clinton would raise investment tax rates on wealthier Americans, while also closing or reducing tax breaks that mostly benefit those at the top. Now there may be fairness or revenue-raising reasons for such policies. But by themselves, tax hikes are a poor way to reduce inequality. A recent Brookings analysis looked at what would happen if the top tax rate were increased to 50 percent from 40 percent — the highest rate since 1986 — with new revenue going to the bottom fifth of all households. We’re talking about $100 billion a year in income redistribution. Yet the study’s authors found the resulting impact on income inequality, as measured by the Gini coefficient index, to be “exceedingly modest.” Basically a rounding error.

Read the full article at the American Enterprise Institute: Hillary Clinton’s inequality plan has big problems