The Trouble with Fairness

TRB

March 25, 1993|By TRB

WASHINGTON. — Washington -- If a single word sustained Democrats throug the Reagan-Bush era, it was ''fairness.'' Fairness was what America was said to have lost under the Republicans. Not surprisingly, ''Restoring Fairness'' is the title of an entire chapter of President Clinton's economic plan. But what, exactly, is ''fairness?''

Usually, ''fairness'' seems to mean progressivity in the imposition of taxes. When the rich pay proportionately more, it's ''fair'' because they have greater ''ability to pay.'' In theory, the goal of this form of fairness is not to redistribute income, but to equalize the burden borne by each taxpayer. The income distribution might remain unequal after the taxes are paid.

In practice, of course, progressive taxes do alter the income distribution. Yet even when inequality has grown, as it did during the '80s, Democrats have been afraid to come out and say they want progressive taxes in order to make incomes more equal (more ''fair''). So it's remarkable that Mr. Clinton has, explicitly, embraced income-equalizing. He calls ''increasing inequality'' one of ''our deepest problems.'' His economic plan not only rails against the '80s (''the richer you were, the better you did'') -- it pledges to ''redress'' the ''alarming rise in inequality.''

We are governed, then, by a Democrat who quite openly embraces both varieties of ''fairness'' -- burden-sharing and income-equalizing. The problem is that both sorts of fairness hold traps for him.

Let's start with the income-equalizing brand of fairness. Is there really any chance that Mr. Clinton's economic plan will produce a significantly more equal income structure? Two distinct tasks face him here: 1) Reversing the dramatic rise in the incomes of the very richest Americans; and 2) Narrowing the more pervasive disparity in earnings between skilled and unskilled workers.

It might seem as if the ''end of the 80s'' has already brought an end to both these inegalitarian trends. The 1989-91 recession hit the rich especially hard. The income share of the top 1 percent actually dropped a bit. The broader trend toward earnings inequality stopped in 1986. But both trends seem likely to reappear once the economy revives. If, as Labor Secretary Robert Reich theorizes, the rich are getting richer because a global economy rewards highly skilled ''symbolic analysts,'' what's going to stop them from being further rewarded? The coming North American Free Trade Agreement will surely push in this direction.

Indeed, none of President Clinton's proposed policies seems likely to reverse the trends, at least not anytime soon. Yes, he would raise the taxes of the rich. In 1977, the top 1 percent paid about 35 percent of their income in federal taxes. They now pay about 29 percent. Mr. Clinton would raise that to about 33 percent. But the top one percent have gotten so rich that it would now take a boost to over 50 percent to reduce their income share to what it was in 1977.

For the middle of the income distribution, Mr. Clinton's chosen remedy is training. If the unskilled are losing ground, give them skills! But the wages of high school dropouts fell 13 percent from 1973 to 1987. As Lawrence Mishel of the Economic Policy Institute notes, even if training expenses were boosted by 1 percent of payroll, and even if a quarter of that investment were returned every year in the form of higher wages, it would take a generation to make up that lost 13 percent.

Certainly the effects of training are unlikely to show up before 1996. Voters may not blame Mr. Clinton -- they understand that some needed changes will take decades. It may not even do any political damage if the effects never show up. For all I know, Democrats can keep getting re-elected by railing against income inequality even as that inequality gets worse and worse on their watch.

But what if the other form of fairness -- burden-sharing fairness -- disappears? In the name of ''fairness,'' Democrats have established a principle that, as one congressman put it, ''we should measure every bill that comes before us by whether it adds to the regressivity of the tax code.'' This principle may have already crippled President Clinton's health-care reform by precluding the taxation of employer-paid health benefits. It may yet kill off his energy and ''sin'' taxes, which are also regressive.

And there is a larger trap. Even the regressive pieces of Mr. Clinton's current plan can be defended with the argument that the plan as a whole is progressive, thanks to its soak-the-rich features. There is a limit, though, to how much the rich can be soaked. Tax them too much and they shelter their income, and not all of these shelters can be closed.

The current round of taxes may be progressive overall. But if Mr. Clinton needs to raise more money, the next round of increases won't be progressive. He will have to convince Americans to tighten their belts in a way that violates his own standard of ''fairness.'' Indeed, this second helping of revenue will look a lot less ''fair'' than if it had been presented in a single package with this year's plan. Perhaps President Clinton should start now to convince Americans that some things are more important than ''fairness.''

L TRB is a column of The New Republic, written by Mickey Kaus.

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