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Wealth Redistribution – Standard practice in U.S. government policy

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In the latest issue of Newsweek, Jacob Weisberg’s article, Spread The Wealth? What’s New?, refutes McCain’s statements that Barack Obama “believes in redistributing wealth.”

Redistribution has a “from” side (taxation) and a “to” side (spending). On the “from” side, the notion that government should use taxation to increase rather than decrease equality is hardly Marxist. In “The Wealth of Nations,” Adam Smith [the father of modern economics] begins his section on taxation with the following maxim: “The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities.” To ask otherwise, Smith writes, would be obviously unfair.

Until the 20th century, the bulk of government revenues came from tariffs, which are regressive, meaning that they redistribute income away from the poor. The progressive principle was enshrined in American practice with the arrival of the federal income and inheritance taxes. The champion of these policies? None other than John McCain’s hero, Teddy Roosevelt. We got progressive income taxes with the passage of the 16th Amendment in 1913. The federal estate tax we have today came in 1916.

McCain is a consistent adherent to his hero’s principles. Unlike George W. Bush, McCain supports the retention of an estate tax (he favors reducing it to 15 percent on estates above $5 million). McCain opposes the flat tax, which would repudiate progressivity (though with a $46,000 exemption, it would still redistribute income). Some of us still remember the John McCain who opposed Bush’s 2001 tax cut, saying it was unfairly tilted toward the rich.

Weisberg goes on to write:

Curiously, the most prominent proponents of more-aggressive wealth redistribution have been Robin Hoods of the right. Milton Friedman is considered the father of the negative income tax, a 1960s-era proposal to simply give cash to the poor. Richard Nixon pitched a version of this plan in 1973. The idea was that writing checks would be preferable to more bureaucratic programs like welfare. Our most explicit redistributive program today is probably the earned-income tax credit, which supplements the incomes of people who work but don’t earn enough to escape poverty on their own. Gerald Ford signed this bill into law and Ronald Reagan greatly expanded it.

McCain has long-favored the EITC, calling it “a much-needed tax credit for working Americans.” McCain doesn’t support the repeal of Social Security or Medicare, or a raft of other wealth-spreading programs like food stamps. And he’s got redistributive measures of his own invention, too, such as a tax credit to help people with lower incomes buy health insurance.

Weisberg ends his article by writing:

There’s little in Obama’s background or writings to suggest he favors more-ambitious redistributive policies. His most expensive new social program is an expansion of health-care coverage that would not create a universal entitlement (as many Democrats want to do) and which has been credibly priced at less, or only slightly more, than McCain’s plan. There’s little reason to think that Obama would depart from the bipartisan consensus that has favored federal spending at approximately the same level for the past 40 years.

What has changed in that period is the way the market has distributed wealth. Since the 1970s, income inequality in the United States has increased dramatically. Obama, like a lot of fellow liberals, would like to find ways to reverse that trend without diminishing overall economic growth. The old John McCain worried about that problem, too. We may see that guy again, after the election.

Written by Valerie Curl

November 3, 2008 at 4:31 PM

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