Charles Lane used his Washington Post column today to imply that the presidential election will be a contrast between Mitt Romney pushing pro-growth policies and President Obama trumpeting reduced inequality. While Mitt Romney's campaign will undoubtedly describe the choice in this manner, what possible basis is there for someone not on Romney's payroll to frame the choice this way?
There is no clear trade-off between growth and inequality either internationally or in recent U.S. history. Many of the countries that are performing best at the moment, such Denmark, Sweden, and the Netherlands, rank near the top in equality of income distribution. Seriously troubled countries, like Greece, Portugal, and Spain have far more inequality.
In recent U.S. history, the economy performed best in the early post-war decades when income was much more equally distributed. The major economic point at issue between President Obama and Governor Romney is likely to be the fate of the Bush tax cuts for the richest 2 percent. When Reagan lowered taxes in the 80s we got the slowest decade of growth in the post-war era until we got the Bush tax cuts in the 00s.
It would be silly to claim that the relatively bad performance of the economy in 80s was due to the Reagan tax cuts or the awful performance in the 00s was due to the Bush tax cuts, but it would take a considerable stretch to argue that cutting taxes on the rich is in general associated with better growth. While lower tax rates do have a positive effect on incentives, a large body of research shows that the potential impact on growth is likely to be small.
In short, the choice in this election is between a candidate who wants to have lower taxes on the rich and either larger deficits or cuts to social programs and public investment and one who prefers higher taxes on the rich and fewer cuts to social programs and public investment. That is the way people not working for Governor Romney would describe the trade-offs.
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