10.28.2008

INCOME REDISTRIBUTION AND TAXES

There are two things that are fairly clear to me, although others may certainly disagree with my positions: 1) the Bible is pro-income redistribution, and 2) the federal government is a lousy mechanism for achieving it.

As to the first statement, there are countless calls in the Bible to give to the poor. God has special concern for the poor, and those of us who have resources giving to those of us who do not is one way we are commanded to participate in that special concern. Let me add a little heat on this, since the Bible definitely employs heated rhetoric: great destruction - to societies and souls - was historically reserved for people who lived it up in the midst of base human need. So, to summarize: participate in income redistribution and you share in matters close to God's heart, don't participate and you do so at your peril.

However, to get to the second statement, is government the best mechanism for making this happen? After all, God cares not just about our individual decisions to give or not give, but also about structures that oppress and populations that are oppressed. A libertarian might say income redistribution is an individual concern and therefore government has no role in it, and on principle, they would be wrong; income redistribution is a societal concern and therefore government can have a role in it.

So it can. But should it? I don't buy completely the theory of trickle-down economics - we rich have a funny way of having a fair amount of our wealth get gummed up in consumption patterns that only benefit us and not others - but neither do I buy a model in which money is discouraged from being poured into the system from the top and is only siphoned from top to bottom.

Let me be clear: social programs are, relatively speaking, good. Economists will tell you that some amount of public services need to be dispensed in order to get people back on their feet, and government is a good mechanism for dispensing those services (tax all, serve some) since the free markets won't. Economists with a heart will add to that universe of recipients not only those who need a temporary hand up to get back to being productive, but a certain universe of recipients who may be more permanently impaired.

But wholesale redistribution of income by ratcheting up marginal tax rates at the upper ends has the unintended effect of discouraging additional productivity among people who are among the most productive our society has to offer. (See here for a clever example.) To use an analogy, we might not need to fuss about the relative size of our slice of the pie if we are all working together to make the pie bigger.

Of course, tax policy any other time is the purview of economists and accountants; and tax policy in an election season is the purview of populist-pandering politicians on both sides of the aisle. And so we have John McCain elevating Joe the Plumber to "I have to refer to him every five minutes" status, and we have Barack Obama spinning his opponent's tax plans as "giveaways to rich oil companies."

Whichever side you are on (and it should be clear from this post where I sit on this issue), you should be glad you have such a stark choice in this year's election. For your reading pleasure, here's a link to a WSJ article that gives you the numeric highlights of where McCain and Obama diverge. And here's a link to a funny story about "how taxes work" that even Snopes.com can't figure out the origin to.

Finally, you may be interested to know that the rich tend to support McCain, but the very rich tend to support Obama. I guess when you have a lotta lotta money, you can afford a little income redistribution.
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