Warren Buffet’s article in the Wall Street Journal reminds me of some posts I wrote a while back on fighting income inequality. His article contains a lot of wisdom. Some excerpts:
The poor are most definitely not poor because the rich are rich. Nor are the rich undeserving. Most of them have contributed brilliant innovations or managerial expertise to America’s well-being. We all live far better because of Henry Ford, Steve Jobs, Sam Walton and the like.
He writes that an expansion of the minimum wage to 15 dollars per hour
would almost certainly reduce employment in a major way, crushing many workers possessing only basic skills. Smaller increases, though obviously welcome, will still leave many hardworking Americans mired in poverty. […] The better answer is a major and carefully crafted expansion of the Earned Income Tax Credit (EITC).
I agree entirely and so would Milton Friedman.
Unlike the minimum wage which draws money from an abstract group of individuals some of whom are not high income earners, the EITC draws funds from the broad U.S. tax base which in turn draws more heavily from upper income individuals. Unlike the minimum wage, the EITC can be directed at low income households rather than low wage individuals — many of whom are simply teenagers working summer jobs. Unlike the minimum wage which discouraged employment, the EITC encourages employment.
Buffet also proposes some common sense modifications to the EITC which I would welcome. In addition to reducing fraud, …
There should be widespread publicity that workers can receive free and convenient filing help. An annual payment is now the rule; monthly installments would make more sense, since they would discourage people from taking out loans while waiting for their refunds to come through.
The main problems with such an expansion of the EITC are political. Taking a serious swing at reducing income inequality would require a lot of money. Republican’s will likely oppose it because it is “socialist” or some nonsense. I’m sure that many Democrats would be very receptive to an aggressive expansion like Buffet alludes to but the cost in political capital might be too great for a politician to pay.