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Redistribution of Wealth: The Good and the Bad

Guest post by: Lee Eldridge

Article Overview: Three words that carry a lot of weight. Redistribution of wealth. While it's an important component of our country's view on taxation, it should not be used like a political club to create social justice.

Redistribution of Wealth: The Good and the Bad

Three words that carry a lot of weight. Redistribution of wealth. This phrase has been thrown around a lot lately. We hear from the Republicans that it's bad. We hear from the Democrats that it's good. They're both right. And they're both wrong. Our government has responsibilities. We may have differences of opinion about how big the role of government should be. But virtually all Americans agree that the government has to protect us (military and consumer protection) and help those of us who need a little help along the way (typically termed as welfare programs though they exist in many forms). To fulfill these responsibilities, the government requires money. And they generate money by taxing us.

So what is redistribution of wealth? That's when the rich pay a higher rate in taxes (or pay a heavier tax burden) than the middle class or the poor to pay for programs that are mostly for the benefit of the middle class and the poor.

When Redistribution of Wealth is Good

So why is redistribution of wealth good? Because we have more needs and more priorities for our federal government than what can be achieved without redistribution of wealth. The rich must bear a larger financial burden to fulfill these obligations. And they do. And truthfully, most of them do not complain about it. They understand that it is needed and required of them. (They DO complain when tax money is wasted, as they should. Or when the government is growing at an unsustainable rate. But that's another discussion that's not relevant here.)

We need to understand that almost EVERY federal expenditure IS redistribution of wealth.

Do you want to be able to mail a letter for $.44? Did you know that the USPS reported a $3.5 billion loss for its fiscal third quarter this year? Who makes up the difference? The rich through their taxes. Who pays for the military? Who pays for farm subsidies? Who pays for the research of green energies? Who pays for cancer research? The rich.

The Bush Tax Cuts

Even the republicans, who typically complain the most about redistribution of wealth, engage in it. Many (mostly on the left) criticize that the Bush Tax Cuts were "only for the rich". The numbers do not back up this claim. As an example, in 2000, the top 20% of earners paid 81.2% of ALL income taxes. In 2004 (following Bush's 2001 and 2003 tax cuts), the top 20% of earners paid 85.3% of all income taxes. Bush shifted a greater tax burden to the rich, and decreased the tax burden on the poor.

Yes, Bush cut tax rates on the rich. But he cut taxes on ALL Americans. And comparatively he reduced the tax burden on the lower 60% of wage earners. His tax policy removed the burden of income taxes from many Americans all together. The Bush Tax Cuts furthered the cause of redistribution of wealth.

When Redistribution of Wealth Becomes Bad

I have attempted to make the case that redistribution of wealth is not bad. That it is required if we're to pay for the federal programs that are important. (Discussing the size and scope of these programs can wait for another day, and is another issue entirely.) The goal of our tax policy should be to provide enough money to the federal government to fund our priorities. But when the GOAL becomes redistribution of wealth, then we've lost our way. Raising taxes on the rich because somehow they don't DESERVE to keep the money they've earned is when redistribution of wealth becomes bad. I was reminded the other day of this exchange between ABC's Charles Gibson and then candidate Obama during a debate with Hillary Clinton. (See ABC's website for a full transcript.)

GIBSON: All right. You have, however, said you would favor an increase in the capital gains tax. As a matter of fact, you said on CNBC, and I quote, "I certainly would not go above what existed under Bill Clinton," which was 28 percent. It's now 15 percent. That's almost a doubling, if you went to 28 percent. But actually, Bill Clinton, in 1997, signed legislation that dropped the capital gains tax to 20 percent.

OBAMA: Right.

GIBSON: And George Bush has taken it down to 15 percent.

OBAMA: Right.

GIBSON: And in each instance, when the rate dropped, revenues from the tax increased; the government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down. So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?

OBAMA: Well, Charlie, what I've said is that I would look at raising the capital gains tax for purposes of fairness.

Social Justice

"Fairness". This really gets to my disagreement on tax policy with the far left. "Fairness".

Let's ask this question in a more hypothetical way: "Candidate Obama, would you be in favor of lowering taxes on the rich if by doing so it would increase tax revenues to pay for your social programs?" According to his comment above, the answer would be "No".

Tax policy is no longer about generating revenues to pay for social programs. It is NOW to be designed to punish the rich. Candidate Obama does not care if a lower tax rate on the rich generates GREATER tax revenues than a lower tax rate. Why? Because allowing the rich to keep their money is not "fair". Those increased tax revenues from the lower tax rates can help pay for social programs - welfare, education, health care, etc. But that doesn't matter. What matters is taking more money from the rich, even if it's to the detriment of total tax revenues, and the detriment of social programs.

That's when redistribution of wealth becomes bad.

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Article Tags: democrats, economy, obama, politics, redistribution of wealth, republicans, taxes



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