Why Republicans Should Take on Inequality

By John Light

February 27, 2013--In an op-ed published in The New York Times yesterday, Sheila Bair, the George W. Bush-appointed chairwoman of the Federal Deposit Insurance Corporation from 2006 through 2011, wrote that recent research by economist Emmanuel Saez should prompt Republicans to rethink their policies.

Saez studies income inequality in America, which reached a 90-year-high in 2007, immediately before the financial crisis.

And Saez’s recent studies have found that, since 2009, inequality is again on the rise.

The economy’s gradual recovery is only a recovery for the one percent:

In the last two years, the richest Americans have seen their incomes grow by 11 percent, while the bottom 99 percent of Americans saw their incomes shrink by 0.4 percent.

In the op-ed, Bair writes that tackling inequality is consistent with a free market ideology, and that her party should embrace it as their prerogative:

I am a capitalist and a lifelong Republican.

I believe that, in a meritocracy, some level of income inequality is both inevitable and desirable, as encouragement to those who contribute most to our economic prosperity.

But I fear that government actions, not merit, have fueled these extremes in income distribution through taxpayer bailouts, central-bank-engineered financial asset bubbles and unjustified tax breaks that favor the rich.

This is not a situation that any freethinking Republican should accept.

Skewing income toward the upper, upper class hurts our economy because the rich tend to sit on their money—unlike lower- and middle-income people, who spend a large share of their paychecks, and hence stimulate economic activity.

But more fundamentally, it cuts against everything our country and my party stand for.

Government’s role should not be to rig the game in favor of “the haves” but to make sure “the have-nots” are given a fair shot.

In an interview with Bill on Moyers & Company about banking regulation, he asked Bair about the connections between income inequality and big banks.

She suggests raising the capital gains tax as one way the tax code could be improved to lessen the income inequality gap.

She tells Bill, “if you’re a hedge fund operator you pay 15 percent and if you’re a young person discovering the cure for cancer you’re paying 35 percent on your income?

I don’t get that.

So I think equalizing, making the capital gains on parity with income or income produce from work is something that could also help adjust this income inequality.”