#164 The Redistribution Scheme

Most fiscal policy has become a redistribution scheme because the benefit actually accrues not to the government, but to those on whom the revenue is spent.  That's not Biblical. When writing about taxes, Gregory Mankiw writes, "The benefit actually accrues not to the government, but to those on whom the revenue is spent.”  So pretty much all fiscal policy is simply a redistribution scheme.   Private Ownership of Goods, and Grades My students don’t want their grades redistributed.  I’ve offered many times, but they don’t want to give part of their grade to a student who made the choice not to attend class.  See, this is a really interesting social science experiment because we’re talking about redistributing wealth in a very close-knit environment.  They KNOW very well, their fellow students who made a choice to skip class, and they want them to be responsible for their own behavior.   In class, we recently heard Tim Groseclose on a PragerU video explaining that the Laffer Curve tops at 33%.  Meaning, if a society’s taxing level is under 33%, people will continue to offer their value-creating labor in return for payment.  But when it’s GREATER than 33%, they begin to do what Ayn Rand calls “shrugging” in her famous book Atlas Shrugged.  Look, we all shrug at some point.  Christina Romer, who was the chief economist for President Barack Obama, claims that as a group, society shrugs when more than 33% of their labor reward is taken from them.  Her article was published in the American Economic Review.     Largesse from the Public Treasury Alexander Fraser Tytler said, “A democracy cannot exist as a permanent form of government. It can only exist until the people discover they can vote themselves largess out of the public treasury.”  There is a great danger this is happening now.   On national election night, you have probably watched endless analyses of the smart map, reporting the smallest details about voting patterns in each district.  When you look at those red and blue sections on the map, you notice quickly that the “redistributionist-leaning” crowds who populate cities vote FOR policies that increase the size of government.  While those NOT receiving funds from the public trough, vote against it.  This does not surprise economists, because we expect the expression of self-interest.  What disappoints us, is the lack of individual ability to seek a higher standard than simple self-interest.  Every day, we choose either to reach for the higher angels of our character or slide to the lower levels.  Just makes you wish people would reach higher, doesn’t it? A recent column by Wall Street Journal Editorial Board is titled How America Soaks the Affluent.  It shows how the top 1% of earners paid over 42.% of the country’s income taxes.  That’s up from about 33% twenty years ago.  That same 1% earned just over 22.% of the nation’s adjusted gross income, which means the share of taxes paid by the top 1% as a group is roughly double their share of income. Whatever else you say about the current tax code, there’s no denying that it is steeply progressive.  Phil Gramm has pointed out that the US has the most progressive taxing system in the world! I’ve pointed out that the rich pay their FAIR SHARE,