Then-presidential nominee Barack Obama speaking with Joe Wurzelbacher while canvassing in Ohio last October. In a famous exchange with Wurzelbacher — "Joe the Plumber" — Obama said that spreading wealth around was "good for everybody."
(Jim Young / Reuters / File)Photos (1 of 1)
ECONOMIC SCENE: Obama takes first step to redistribute wealth
Modest effort may still face still opposition in Congress.
By David R. Francis | Staff Writer/ July 21, 2009 edition
In a now-famous exchange with “Joe the Plumber” last fall, presidential candidate Barack Obama got a lot of scrutiny for saying: “When you spread the wealth around, it’s good for everybody.”
Conservatives scoffed. GOP rival John McCain painted him as “redistributionist in chief.” Now the redistributionist has proposed a budget that moves some money from the very rich to the poor and middle class. Is that a bad thing?
Some numbers to consider:
•From 1979 to 2006, the richest 1 percent of US households more than doubled their share of the country’s total income from about 10 percent to nearly 23 percent. By 2006, for every dollar the US produced, 23 cents went to millionaires in the top-earning households.
•During that same period, about 91 percent of all the nation’s income growth went to the top 10 percent of households by income.
•In the new century, most families have experienced stagnant or falling incomes.
The United States has “the highest [income] inequality by far in our history and among advanced nations,” says Lawrence Mishel, president of the Economic Policy Institute in Washington and an author of the biennial book, “The State of Working America,” which contains the numbers above.
President Obama’s budget aims to change that, modestly. The top 1 percent of families would lose some 3 percent of their present share of income by 2012, according to a study by economists at the business-friendly Tax Foundation. That still leaves the top 1 percent way ahead in their share of total income than in any year under President Reagan, who pushed tax cuts for the rich in the 1980s as a way to boost economic growth.
That would cut the income for the top 1 percent an average of $64,000 per household, to a bit more than $2 million by 2012, the Tax Foundation study found. The Obama budget does make for “more even distribution of the economic pie,” the study concluded.
Even this modest adjustment may be difficult to get past Congress. “Send reinforcements,” reportedly joked Jared Bernstein, a liberal redistributionist now at the White House.
The Tax Foundation study is unusual in that it looks at both tax and spending redistribution effects of federal actions. That requires some bold assumptions. For example, defense spending is assigned to each income group in proportion to the income of that group. The rich are assumed to benefit more because they have more to protect.
Optimal redistribution is in the eye of the beholder, says Gerald Prante, an author of the study.
Some conservatives argue that the rich shouldn’t be taxed more because they supply the capital needed to make the economy grow, which eventually benefits the poor. There is a tiny truth to this, finds a new study out of Harvard University’s Kennedy School in Cambridge, Mass.
The “trickle-down” effect is “very small,” says Christopher Jencks, one author of the study.
Based on data from 12 developed nations from 1905 to 2000, the study finds that a one percentage point rise in the income share of the top 1 percent is associated with a “statistically significant” 0.12 percent average rise in the growth rate of national output. But it takes 13 years for that faster growth rate to offset the income loss for the bottom 90 percent. It may never happen if a major recession hits first, Mr. Jencks concludes.
To reduce income inequality and share prosperity goes beyond budget-driven redistribution, says Mr. Mishel. He urges health insurance for all, an increase in the minimum wage, and a restoration of bargaining power to labor unions.
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Comments
2. John Scott | 07.21.09
A flat tax rate is the optimal solution and has been proven/approved by economists as the best way to prevent severe income inequality or a restriction to economic growth (as a result of too much redistribution) for decades.
The only problem is that good economics is not always good politics.
3. James Corbin | 07.21.09
Redistribution of wealth should never be a policy of taxation. To take from those who earn money and give to those who don’t is a huge disincentive for the wealthy to invest in any risky business start-ups or expansions. They start to look for things like municipal bonds and other like financial instruments to avoid the taxman, which does little for the economy. The lower classes receiving this money run out and spend it, having a much smaller effect on the economy as a whole in terms of long-term health.
There is also a corrosive political effect of taking from the “haves” and giving to “the have nots.” Once the “have nots” become a large enough voting bloc, they will politically demand a larger and larger share of the wealth. Since they pay little to no taxes, there are no repercussions for them not to do so. Yet this will surely destroy our economy in the long run and the financial well being of the government as well. Perhaps we should return to the principle of allowing only land owners to vote. The principle behind this is that land owners pay taxes and are also responsible enough to own real property. This would put an end to the potential death spiral of the “have nots” eating entirely the wealth of the “haves.”
4. Woody Porter | 07.21.09
I agree with the comments of Mr. Crispin (#1) — with one (in my humble & proud opinion) improvement: “straight across the board” yes — but with a subtle feathering of the percentage upward as income rises. That seems to me both a moral and a common-sense imperative. Moral: those who can afford more should contribute more. Common-sense: for an income of $30,000, paying taxes of 15% reduces one’s income to $25,500 — a significant impact on everyday life; for an income of $900,000, paying taxes of 15% reduces one’s income to $765,000 — a less-than-significant (truth to tell, negligible) impact on everyday life.
Feathering is needed.
Some don’t want feathering. They want loopholes. They cry “Fifteen percent?…I WANT that $135,000!” They find people — bought and paid for — who will cry “But they NEED that $135,000…or they won’t create any new jobs!” Most amazingly, they find people who will — even against their own family’s situation — buy into such malarkey.
So dream on, Mr. Crispin. An army of accountants, lawyers, lobbyists, a news channel, several ad agencies and a dozen think-tank gurus are arrayed in full-battle armor against you…
Good luck, good sir.
5. kd | 07.22.09
I wish he would have said, “spread the opportunity around”
During a recession, we have millions of people who want to work for a living, and yet are locked out because we have been forcing companies to also be health insurance salesmen.
Between my employers and I it takes $1600 a month to pay for health insurance for my family. Taking that much off the top is just enabling companies to do the wrong thing and send jobs to people in other countries.
The employers argue, they need jobs too. No, they don’t. Nobody needs a slave labor job. We are not spreading our values. We are paying people to hold them back.
6. Wayne | 07.22.09
The Reagan and Bush years have seen an eyepoping shift in wealth into the hands of a few, creating a ‘class structure’ that flies in the face of the founding principles of this country. However, they used the twin systems of banking and taxation to accomplish this, and now as the curtain rises on another act we see the Obama administration continuing these policies. Of course the Obama administration pretends to be ‘Robin Hood’ playing to the GOP ‘Sheriff of Nottingham’ but the outcome will be the same - wealth flowing into the hands of the few, through banking and taxation systems, at the expense of the rest of us.
What needs to be addressed is the corporate power to compensate beyond the levels of reward for performance. What happened to redistribution of corporate profit to proud employees? What happened to corporate sense of civil responsibility for retirees and employee health?
Corporations are simply special ‘citizens’ and they are now behaving as if they were ‘lords of the manor’ exploiting citizens on a global basis.
Don’t add taxes, reduce them. Don’t add government oversight, reduce it. But do address the massive license to steal that has been given to corporations. Socialism? Not at all. The pilgrim farmer worked well with the blacksmith and the grocer because they all had the same sense of civil responsibility for each other and their neighbors…
7. Wayne | 07.22.09
The Reagan and Bush years have seen an eyepoping shift in wealth into the hands of a few, creating a ‘class structure’ that flies in the face of the founding principles of this country. However, they used the twin systems of banking and taxation to accomplish this, and now as the curtain rises on another act we see the Obama administration continuing these policies. Of course the Obama administration pretends to be ‘Robin Hood’ playing to the GOP ‘Sheriff of Nottingham’ but the outcome will be the same - wealth flowing into the hands of the few, through banking and taxation systems, at the expense of the rest of us.
What needs to be addressed is the corporate power to compensate beyond the levels of reward for performance. What happened to redistribution of corporate profit to proud employees? What happened to corporate sense of civil responsibility for retirees and employee health?
Corporations are simply special ‘citizens’ and they are now behaving as if they were ‘lords of the manor’ exploiting citizens on a global basis.
Don’t add taxes, reduce them. Don’t add government oversight, reduce it. But do address the massive license to steal that has been given to corporations. Socialism? Not at all. The pilgrim farmer worked well with the blacksmith and the grocer because they all had the same sense of civil responsibility for each other and their neighbors…
8. Edward | 07.22.09
One tax that would provide income from money laundering, unreported gambling, and from individuals who skim from their “all cash” businesses is a National Sales Tax. All food (except restaurants) should be exempt. Just think of the billions of dollars that would be raised from cheats who nver report their true income. At least they would be taxed on the other end when they spend it.
9. Wayne K. | 07.22.09
If you are interested in tax reform, I strongly encourage readers to read up on the FairTax (http://www.fairtax.org). It really seems to be an answer for all, since it taxes consumption (wealthier people buy more stuff so they pay more) and eliminates all the special interest lobbying which goes into making tax code.
Because all Americans would get a “prebate” each month for taxes that would be paid on essentials (food, clothing, etc.), the lower income citizens pay no taxes.
Independent studies have found that about 20% of the purchase price of the goods and services we purchase is embedded taxes which are added throughout the manufacturing and distribution of products (corporations don’t really pay taxes–they are all included in the price of goods and services charged to the consumer). These costs will go away through competition. Bottom line is a 23% consumption tax really is only a 2% to 3% added cost after the price of items drop–something not often clearly reported in the media.
Since used goods are not taxed at all in the plan, people who choose to buy used cars and household goods won’t pay any taxes on these purchases.
And remember…you get to keep 100% of your paycheck (no FWT, SS, FUT taxes withheld). Check it out. It makes great sense.
10. Everette Carnes | 07.22.09
There will always be tension between haves and have-nots with any single income tax plan. My proposal - not a solution but a proposal, is to have two types of taxes on income. You could use the same income tax form. One tax would be a ‘flat tax’ on all income. The other would be a graduated tax on all income less deductibles. Rates subject to adjustment.
11. RHarrisonScott | 07.22.09
It never fails to amaze me that those who believe in the redistribution of wealth never seem to put their money where their mouth is. While Obama and Biden continue to insist that it’s important wealth be shared with the less fortunate, neither has ever seen fit to share the wealth they’ve accumulated over the years with any charitable organization. Neither of these gentlemen share the wealth. They’re only interested in redistributing everyone else’s wealth. Biden gave less than 1% of his income to charity. Obama (I think this is correct) didn’t give more than 5% and up until last year, practically nothing. George Bush gave 16%.
Their commitment to the poor is a joke.
12. SaintAoro | 07.23.09
I believe redistribution is a good thing, consider this. An economy is mainly driven by the comsumer, buying products they don’t need. New electronics, cars, ext. So basicly if you give 100,000 people $1000 those people are going to use it buying new things a promoting new jobs. if you give 1,000 people $100,000 it will have much less effect.
13. George Peternel | 07.30.09
Our economic system not only allows the rich to get richer and the poor to get poorer, but there are no built-in mechanisms in the system to shift income and wealth in the direction of more equitable levels. Consequently, there is nothing fair about a flat percentage tax because the opportunities to earn incremental income increase as the income level increases. Therefore, a progressive tax system is the fairest way to go.
14. Dave W | 08.03.09
How do we feel about a Golden Jubilee?
Seems we might then proclaim liberty throughout the land,
to all the inhabitants thereof…
15. Ezekiel P | 11.18.09
Dear, James Corbin
Are you kidding? I desperately hope you are. The idea of the “have-nots” eating all of the wealth of the “haves” makes little sense. If the “haves” lose all their wealth then they are no longer the “haves”. It seems to me like you were saying that taxing the “haves” so as to create a more equal distribution of wealth where “haves” and “have-nots” did not exist is a bad idea. To me, a more equal society is a very good idea, especially in a country so polarized economically. Your fear is that more and more of the population will demand redistributing of the wealth from the very rich. Historically speaking, Obama’s tax plan taxes the rich less than Reagans and much less than the system as it was from the 1940’s until the 1970’s.
I have not even touched on your last ridiculous comment that only landholders should vote. This would not lead to a more responsible voting block but to a feudal state of democracy. The landholders would enact laws to control labor, profit off the lower classes and create a sort of slave society. Are you a landowner from England in the eighteen hundreds? What is wrong with you?
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1. David Jay Crispin | 07.21.09
I am not for “redistribution” but do wish the the wealthy paid their fair share of taxes. It is a crying shame when I pay more income taxes on my measly little salary then some millionaires.
That is why a straight across the board flat tax would be best. One with absolutely no deductions, no special classes of tax payers, no rebates, no credits. If every dollar of income no matter the source was taxed at .03 or .05 or whatever it came out to then there would be no questions.
The people who complain most about “redistribution” would cry loudly if such a tax was ever proposed. They might actually have to pay taxes.