The Economist makes some suggestions:
Inequality can be a symptom of inefficiency. The implicit subsidy provided to banks that governments judge too big to fail allows bankers to overpay themselves. And a highly skewed distribution can lower growth, if it translates into less equality of opportunity for the next generation. This seems to be happening. The gap in test scores between rich and poor children is 30-40% wider than it was 25 years ago: given that the distribution of innate intelligence is unlikely to have shifted so much in a generation, that suggests that rich youngsters are benefiting more than ever from their economic and social advantages. Measures of social mobility between generations, already lower than in much of Europe, have stagnated. ...
Plenty of American politicians worry about inequality, but few offer constructive ways of dealing with it. ... Inequality is not impervious to government policy, but higher marginal tax rates are not the only or the best way to address it. A two-part agenda drawing on ideas from both left and right, aimed at reducing boondoggles for the affluent and increasing investment in the young, could achieve a lot. ...
The attack on favours for the wealthy ought to start with the budget. America’s tax code is riddled with distortions that favour the rich, from the loopholes benefiting private equity to the mortgage-interest deduction (an enormous subsidy for those who buy bighouses ). A simpler, flatter code with no exemptions would be more efficient and more progressive. A blast of deregulation would help, too. Many of America’s most lucrative occupations are shielded by pointlessly restrictive rules (think doctors and lawyers).
Investment in the young should focus on early education. Pre-school is a crucial first step to improving the lot of disadvantaged children, and America is an international laggard. According to the OECD, it ranks only 28th out of 38 leading economies in the proportion of four-year-olds in education. Mr Obama has a plan to push universal pre-school. The details are imperfect, but it is a goal that Republicans should embrace. Equality of outcome will always be a fantasy, but America should do more to spread opportunity widely.
