Hillary Clinton's inequality plan has big problems

The U.S. presidential race has seen each party obsessed by one big issue. For Republicans, it's immigration — or at least what Donald Trump is saying on a particular day about immigration. For Democrats, it's income inequality. Hillary Clinton says we need to "reshuffle the deck" to give the middle-class a better deal. Bernie Sanders complains about a "rigged game" in favor of the rich.

The GOP front-runner's solutions — a giant, impregnable wall on the southern border and mass deportation — have gotten plenty of scrutiny. The bipartisan wonk consensus is that they're unworkable, if not ludicrous and counter to traditional American values. But Clinton's inequality agenda, while certainly in the public policy mainstream, has big problems, too. Here are the three pillars of her plan — and why they fail:

1. Higher taxes on the rich. Clinton would raise investment tax rates on wealthier Americans, while also closing or reducing tax breaks that mostly benefit those at the top. Now there may be fairness or revenue-raising reasons for such policies. But by themselves, tax hikes are a poor way to reduce inequality. A recent Brookings analysis looked at what would happen if the top tax rate were increased to 50 percent from 40 percent — the highest rate since 1986 — with new revenue going to the bottom fifth of all households. We're talking about $100 billion a year in income redistribution. Yet the study's authors found the resulting impact on income inequality, as measured by the Gini coefficient index, to be "exceedingly modest." Basically a rounding error.

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2. Raising the minimum wage. Clinton supports a federal $12 minimum wage and believes "we should go further... through state and local efforts: such as the 'Fight for 15.'" Many on the left portray minimum wage hikes as "settled science," hand waving away concerns about negative job impacts. They shouldn't. For instance, new research by University of California, San Diego economist Jeffrey Clemens finds minimum wage increases from 2006 through 2012 had "significant, negative effects on low-skilled workers' employment." Likewise, a new analysis released by the San Francisco Federal Reserve finds "few of the benefits" from a higher minimum wage "are likely to flow to poor families, and some go to quite high-income families." And in a recent op-ed, former Obama White House economist Alan Krueger concludes $15 an hour is beyond international experience, and could well be counterproductive.

3. Universal pre-school. Clinton wants "every 4-year-old in America [to have] access to high-quality preschool in the next 10 years." But the value of pre-kindergarten is another issue that's far from settled, even though media coverage typically treats it as such. For example, a recent study on Tennessee's preschool program for low income families failed to find "any sustained effects, either in social and emotional development or achievement." Indeed, the kids who attended preschool fared worse academically by third grade than those who didn't. One reason the research is so compelling is that it looks at pre-K as it operates in the real world.

The U.S. needs to reform its immigration system intelligently. And America's changing economy may be less adept at providing shared prosperity than in the past. But the solutions need to be data-driven and evidence based.

More importantly, the top economic issue facing America is weak economic growth. The latest data suggest the U.S. remains a 2 percent economy, as it has throughout the recovery. Not only is that pace of growth weak by postwar standards, it puts the economy at a chronically higher risk of recession. Indeed, the recent stock market selloff partially reflects investor fears than a Chinese slowdown may be enough to trigger a U.S. downturn.

And if that happens, voters may wonder why the presidential candidates have been talking about the wrong thing for the past year.