There's not much that can be done about the rise of the top 1 percent of income earners unless "you want to start jailing people," former President Bill Clinton said Wednesday, defending his own record as president on middle-class incomes.
In a wide-ranging interview at the Peter G. Peterson Foundation Fiscal Summit in Washington, Clinton addressed the recent uptick of interest in income inequality, especially in light of the new book Capital in the 21st Century by the French economist Thomas Piketty. Piketty warns that wealth inequality may rise inexorably in the years to come, and recommends soaring marginal income tax rates and a wealth tax.
"If you're in the middle of the ocean and you're drowning, no one wants to have a discussion about how you should have a bigger swimming pool in your backyard," Clinton said, explaining why the topic of inequality has grown in political importance even as the economy has improved since the financial crisis.
Clinton allowed that inequality is "a severe constraint on growth for the country" and that "real life is tough for people," saying that median incomes, adjusted for inflation, are lower now than they were on the day he left office.
Nevertheless, Clinton said that "we can't just tax our way out of this," noting that the individual income tax code for the U.S. is progressive. Instead, he identified the scarcity of jobs as the major problem.
"To reduce inequality you have to have tight labor markets and a changing job mix," Clinton said, noting that all five income quintiles saw gains during his presidency, which he attributed to strong job growth.
As for creating jobs, "I think we should start with corporate tax reform," Clinton said.
His proposal is for the U.S. to lower corporate tax rates, even without broader tax reform that includes individual taxes, and allow for the repatriation of foreign earnings. "We've got to unlock this money," he said, adding that "it's a trillion dollars, for God's sakes." He recommended allowing foreign earnings to be repatriated with a tax dedicated to an infrastructure bank that would fund projects that would boost jobs growth.
Clinton also noted that he approves of the minimum wage increase that President Obama proposed as the main remedy to growing income inequality, which he called the "defining challenge of our time." Clinton said he never noticed that raising the minimum wage hurt job growth when he was president. The Congressional Budget Office, the nonpartisan budget scorekeeper, estimated in February that raising the minimum wage to $10.10, as Obama and Democrats have proposed, would cost the U.S. about 500,000 jobs.
One of the major factors stunting the growth of middle-class incomes, Clinton suggested, has been the "breathtaking amount" the U.S. spends on health care. President Obama's health care reform, he said, is ameliorating the problem through changes to the delivery system.
He also defended the law despite the early problems with its rollout, saying, "Albert Einstein couldn’t have done it perfectly the first time."