I have been experimenting with a different approach, inspired by Ayn Rand herself. When I argue with a lefty, I start out by attacking the right! If there is one group that lefties REALLY hate, it's the Robber Barons. So, I start off talking about how everything was just great before THEY came along, suborned government to their will, and gained unfair advantages in the marketplace which gave them great power and monopolies. You want to be careful here to distinguish between those businessmen who were commonly regarded as robber barons, but who earned their wealth in legitimate competition, and those who gained it through government subsidies, grants, special privileges and tariffs. See in this connection The Myth of the Robber Barons by Burton W. Folsom, Jr. See also Rand's essay, "Notes on the History of American Free Enterprise" in Capitalism: The Unknown Ideal, in which she points out that "the actions blamed on businessmen were caused, necessitated and made possible only by government interference into business. As she says, "The evils, popularly ascribed to big industrialists, were not the result of an unregulated industry, but of government power over industry. The villain in the picture was not the businessman, but the legislator, not Free Enterprise, but government controls."
Now, you know that what I just described is the process by which the Robber Barons subverted pure capitalism, and that a return to pure capitalism would solve the problem. It's best not to say that to your lefty friend just yet though. As soon as he hears "return to pure capitalism", his ears will slam shut and his head will explode. You might stress the phrase "laissez-faire" capitalism in contradistinction to "crony capitalism," which is what we have now.
Gradually work in the fact that government intervention in the economy, on behalf of the evil Robber Barons, stifled competition and hurt the little guy. Since there was no competition between employers, they could offer very low wages and poor working conditions to potential employees who had no other viable options. This too is a myth. With the rare exception of monopsony (the existence of only one employer in a particular community), there was always competition among employers for employees. This is born out by the fact that wages were nearly always rising under non-union capitalism. (See in this connection, Morgan O. Reynolds Power and Privilege: Labor Unions in America., p. 26)
Then talk about how the government, at the behest of the Robber Barons, was essentially stealing money and power from the "working man" and giving it to the giant corporations. Really -- in the early days of capitalism? I wasn't aware of this. How exactly did the government do this? -- steal money and power from the working man?
Of course, this all violates the principle that "stealing from one person to give to another is bad." He might start to get a little suspicious at this point. However, as long as you continue to expound upon that solid, unchanging principle, based on the fundamental reality of human existence, that stealing from the little guy to support the big guy is "bad" then he will most likely continue to go along with you, probably even defend you against other people who may be chiming in from the Right. I think this is the wrong approach. You're evidently trying to trick him into agreeing with you. The principle is not simply that it's wrong to steal from "the big guy" and give "to the little guy"; it's that stealing is wrong on principle regardless of who the victim is, whether it's the rich or the poor. I don't think your leftist opponent will agree that stealing is wrong on principle, because he doesn't share your premises.
Of course, as an objectivist you know that when you describe "A principle that limits our freedom to take money from one person and give it to another" you are really just describing "Property Rights." You might even be able to get away with using the term "property rights" so long as he still thinks you're only talking about the property rights of the "working man" and not of the "evil corporate Robber Baron bastard." You see, that's my point. He's not going to agree with you on the broad principle of property rights, because he doesn't believe in it.
It's important to note that you haven't lied to him, nor have you abandoned your own Objectivist Principles. You have simply explained how YOUR principles are the same as HIS principles. But they're not, and you're evidently trying to trick him into thinking they are.
Now you can begin the delicate process of explaining that the excesses of the Robber Barons were destroying liberty (the condition where all rights are preserved) in The U.S.A. In fact, even though their actions and policies actually had the short term effect of great growth of industrial power in the United States, that growth came only at a greater cost to society as a whole through loss of liberty and in the longer term had catastrophic effects on the economy. I don't think you can say that the "great growth of industrial power in the United States" was due to government enforced monopolies; in the absence of the government's intervention, it is likely that the growth of industrial power would have been even greater. Government granted monopolies more likely retarded that growth.
Progressive policies sought to redress those wrongs by creating laws that favored the "common man" over the "rich fat cat." He will probably still be nodding along, maybe even slapping you on the back and calling you "comrade." However, it is at this point that you start to explain to him all of the ways that his socialist policies are the exact same evil as the fascist policies of the Robber Barons, just applied in the opposite "direction." You explain that the Progressive policies of Woodrow Wilson and the later "New Deal" policies had the short term effect of propping up the middle class, but only at the expense of liberty for society as a whole. I don't know what you mean by "propping up the middle class." Wouldn't the "middle class" have been better off without the New Deal policies?
At any rate, I don't think this approach will work, and I don't think that died-in-the wool leftists are likely to be "converted." Your time is much better spent appealing to people who are not already committed leftists or statists.