Um…About that Redistribution Thingie…

September 21st, 2012 at 10:26 pm

Update: Nice WaPo editorial on this: “To tax is to redistribute. To govern is to redistribute. Benefits from government spending flow in different amounts to different individuals and different states.”

 

Lots a words flying around about who is and isn’t a “European-style-five-year-planning-redistributionist.”

Let’s look at some facts.

First, from some work by my CBPP colleagues, here’s a picture comparing shares of the population by income with shares of entitlement benefits, including Social Security, Medicare, Medicaid, UI, EITC, and a bunch of other stuff.  The bottom fifth receives a larger share of benefits than their income share and visa-versa at the top, which is what you’d expect in a system where some, though not all, benefit receipt is conditional on income.

The middle class benefit share is proportionate to its income.  All told, clearly some redistribution here but not anything that would lead to stark divisions between “makers and takers.”

But what if we look at another type of entitlement in our system: tax expenditures?  Those are the credits and deductions you subtract from your tax liability for favored expenditures and income types, like capital gains or the mortgage interest deduction.

Those tax benefits are redistributed upwards.  Two-thirds go to the top 20% and 24% of the benefits go to the top 1%.

Finally, here’s a disturbing little picture from Goldman Sachs reseachers about whose incomes get whacked by the tax increases (and loss of UI benefits) associated with the fiscal cliff.  One point is of course the contractionary impact of income losses next year—if we go over and stay over the cliff*—that range from 9% for low-income households to 7% for high income ones.

THE FISCAL CLIFF EFFECT BY INCOME GROUP

Source: GS Researchers

But another thing you see here is who’s fighting for whom.  If, like Congressional R’s, you’re fighting to get rid of UI benefits but preserve the high-income tax cuts, you’re an upward redistributionist.  If, like some of the D’s, you’re ready to finally let the high end tax cuts sunset in the interest of deficit reduction (about $1 trillion over ten years), while preserving UI for the long-term unemployed, you’re trying to steer more benefits to the low end.

So let’s be clear about this.  In a system like ours with so many tax and benefit cross-currents, there’s always a lot of redistributing going on.  And it goes both ways.

*If we go off the cliff but reverse course quickly, reinstating, e.g., the middle-class tax cuts, extended UI benefits, and payroll tax cuts, this picture looks a lot less bad at the middle and low-end of the income scale.

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9 comments in reply to "Um…About that Redistribution Thingie…"

  1. Jake says:

    Margaret Thatcher supposedly said there is no such thing as “society”, presumably believing that human interaction only can be understood in terms of markets. Redistribution by spending or tax breaks evidence the existence of society by attempting to alter market effects. We have to be able to think in both terms to make good decisons about what we want our policies to be.


  2. pjr says:

    Excellent posting. I believe that “tax expenditures” are defined far too narrowly and a broader definition would show a much greater amount going to the top 1 to 5 percent. That said, you made your point.


  3. Michael says:

    Why are you/we wasting our time with this? It’s all just racist dog whistles and class warfare.


  4. perplexed says:

    Great stuff Jared! At least this is start to adding some clarity to this debate. But why not include everything & then reconstruct the pie charts? Maybe I missed it, but I don’t see corporate tax expenditures here (which go almost entirely to the top) and I also don’t see anything about monopoly profits and other forms of rent which go almost entirely to the top (and tax everyone else).

    Why not start with the revenue that would be collected in the absence of all “tax expenditures,” add in monopoly profits and other know forms of rents, and then show how all government largesse is distributed so the American public see the whole picture of the government’s impact on the economy and what percentage gets “distributed” to whom. Its pretty well known that “tax expenditures” are little more than an accounting gimmick designed to obfuscate the reality of what the government is actually doing. Why is that the “economics profession” goes along with this concealment instead of measuring and recording what is actually taking place?


  5. rjs says:

    looking at your graphs, i dont see TARP, TALF, TSLF, CPFF or any of the other Fed emergency lending programs that distributed $16 trillion in virtually interest free loans to the international banksters…

    and i dont see QE either, which arguably has been a program to boost risk asset prices held by the wealthy at the expense of higher food & fuel costs for the lower class…

    from here, most every restributive function of government has been from the poor to the rich, not the other way around…


  6. Winslow R says:

    I was hoping expenditures had to do with which class has access to government contracts.

    Where are the statistics that are used to justify women, small business and minorities to government contracts?


  7. urban legend says:

    It’s really, really wrong to characterize most of this as “re-distribution.” Re-distribution from what is the question that needs to be asked. Calling progressive marginal tax rates “re-distribution” doesn’t make sense unless one assumes that flat rates are somehow the natural order of things, instead of, especially if the differences are moderate as they were in the Clinton years, a simple allocation of responsibility for the cost of government based substantially on the impact of taxes on discretionary income. Labor force policies that make sure employees are allowed to form unions without employer interference are about an allocation of bargaining power for the parties to determine how the revenue of an entity will be distributed between capital and labor. Minimum wage laws merely set minimum standards of decency in primary allocation of revenues — again, not a matter of “re-distribution” unless one assumes the employer has an initial right to all of the revenue of an enterprise.

    Welfare, food stamps, unemployment compensation — these are re-distribution. The portion of Medicare funded by general revenues probably could be called re-distribution.


    • Andrew says:

      In the end, all that really matters is the distribution of assets among all people. If tax policy or government spending alters that distribution, then there has been a “re”distribution. Any desired distribution can be achieved in multiple ways, and handouts are only one, and perhaps the most pernicious in that they tear down those they assist through scorn and notions of entitlement.


  8. CLAR says:

    to believe that tax cuts and the like are redistribution you logically have to believe that all resources a private citizen produces belong to the government…and then any the government graciously allows the producer to keep is then redistribution.

    i doubt many americans share that philosophy, despite the emotional reaction people will have about looking at those graphs without any critical thinking.

    trying to talk about ‘redistribution’ in this manner while ignoring the absolutely criminal banking bailouts and MASSIVELY regressive QE programs is laughable. somehow, the fed reserve giving money directly to bankers isn’t redistribution while letting people keep a bit more of their own money is redistribution.

    hilarious.


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