Redressing the rising income inequality

Redressing the rising income inequality
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First Published: Wed, Dec 19 2007. 12 31 AM IST

Cutting costs: Barack Obama favours withdrawal of US forces from Iraq, a cheaper health care plan and a crackdown on corruption.
Cutting costs: Barack Obama favours withdrawal of US forces from Iraq, a cheaper health care plan and a crackdown on corruption.
Updated: Wed, Dec 19 2007. 12 31 AM IST
While Barack Obama’s pledge to pull troops from Iraq puts him to the left of Hillary Clinton, on economics the freshman senator from Illinois is closer to the centre. His health care plan is cheaper. His tax proposals are less rooted in class warfare and he has set his targets equally in cracking down on government and business corruption.
Cutting costs: Barack Obama favours withdrawal of US forces from Iraq, a cheaper health care plan and a crackdown on corruption.
Obama’s economic spokesman Austan Goolsbee, a University of Chicago professor, is nearly as eloquent and persuasive as the candidate.
He believes that risinginequality has changed the American character since 2000. Before then, this was primarily the result of higher rewards for education.
Since 2000, income gains have been concentrated at the very top, while middle-income living standards have stagnated or declined. To redress this imbalance, Obama would increase the earned income tax credit and expand child credits, while allowing the Bush cuts to expire and requiring social security contributions on incomes more than $200,000 (about Rs80 lakh). Repealing the cuts, introducing representative Charles Rangel’s alternative minimum tax reform and boosting social security contributions would, if combined, raise the top federal income tax bracket from 35% to 50.2%.
While most of his Democratic competitors for the Oval Office support this trifecta of tax changes, Obama is alone in recognizing that such a drastic increase in the top tax rate could cause economic disruption, and carry enforcement difficulties. While he has not set out specific remedies to address this, his acknowledgement that these changes carry potential downside brings Obama closer to the centre on the issue than his rivals. Similarly, Obama’s health care plan would impose a universal mandate only for children.
He believes that medical savings accounts reduce the amounts spent on preventive health care, so he would target health care spending towards prevention. He wants to make the US health care system more efficient since it currently costs more than other advanced countries’ and delivers worse outcomes. He would impose minimum payout ratios on health insurers and set up a statute of comparative effectiveness to reduce medical tort suits to the most egregious cases.
Although he wants to pull out of Iraq, Obama favours increasing defence spending beyond its 2000 level, targeting it to meet new threats. He favours a “cap-and-trade” carbon emission permits system, but supports nuclear power.
With a cheaper health care plan than other Democrats and huge savings from a withdrawal from Iraq, Obama’s overall fiscal programme looks fiscally sound. But failure to deliver these promises would tip the fresh thinking of the race’s “ideas man” into a budgetary black hole.
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First Published: Wed, Dec 19 2007. 12 31 AM IST
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