On Sharing the Wealth

On Sharing the Wealth October 30, 2008

McCain’s sudden attack on Obama for “sharing the wealth” and promoting “socialism” is utterly incoherent. The only appropriate reaction is: huh? Let’s try to figure it out. The part of Obama’s plan than so irks McCain is raising tax rates on those who earn above $250,000 back to their pre-Bush levels, while simultaneously giving tax cuts to those making less than $200,000. Here’s the problem: any income tax system is inherently redistributive. If you want to remove any progressivity (in the sense that the average tax rate rises with income), then you need not only a flat tax, but a flat tax with a zero threshold (in other words, you start paying from your first dollar, no exemptions or deductions). Not even the crazies on the libertarian fringes are promoting such a reform.

But this is only the start. Income tax is only one tax, and is progressive just as many others have strong regressive elements, including social security contributions and sales taxes. This is the problem when people focus only on the income tax, and notice that a substantial number escape the net, and indeed receive refundable credits (something even libertarians like Milton Friedman have long advocated by the way). But on the whole, the federal tax structure is pretty progressive, as one might expect. Obama’s proposal merely tinkers around the edges. Is McCain planning to completely overhaul the progressive income tax system? I think not.

We also need to go beyond taxes and take in spending too, for the whole of fiscal policy is redistributive, in the sense that different groups of people gain more or less in spending over what they contribute in taxes. One way to calculate this is by state. And the results are instructive. A report from a few years back shows clearly that the so-called red states are the ones benefiting greatly from this “sharing of the wealth” in the sense that they gain more than they lose. Given that the red states are disproportionately poorer, this is not too surprising. Of the 32 states that receive more in federal funding more than they receive in taxes, 76 percent of them are Bush states. The three biggest losers from the federal redistribution game are California, New York, and Massachusetts. The big winners are DC, North Dakota, New Mexico, Mississippi, Alaska, and West Virginia. So if McCain wants to complain about redistribution, perhaps he should have a little chat with his running mate and his base.

So what is McCain talking about? Indeed, Larry King (of all people!) tried to find out last night. From the transcript:

KING: Concerning spreading the wealth, isn’t the graduated income tax spreading the wealth? If you I and pay more so that ‘Jimmy’ can get some, some for him–or pay for a welfare recipient, that’s spreading the wealth.

MCCAIN: That’s spreading the wealth in the respect that we do have a graduated income tax. That’s a far cry from taking from one group of Americans and giving to another. I mean that’s dramatically different. I mean Senator Obama has clearly talked about for years redistributive policies. And that’s not the way we create wealth in America. Not even the crazies on the libertarian fringe are pushing such a radical reform.

I don’t know about you, but I have no idea what he is trying to say. This is completely incoherent. Then again, the attack always made no sense. “Taking from one group of Americans and giving to another” is exactly the what happens with fiscal policy. Of course, McCain himself advocates redistribution on a daily basis, from cutting taxes on upper income levels and freezing spending programs, having government buy out bad mortgages, and boosting spending on the military.

In a sense, a progressive income tax is a basic issue of fairness. Indeed, the father of liberal economics, Adam Smith, made this very point when he argued that “It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion“. In the current economic climate of rising inequality, where the benefits of growth have accrued only to the rich, the case for progressivity becomes even stronger.

Of course, McCain knows this. He made this very argument about the Bush tax cuts (before the monster flip-flop) arguing against redistribution toward the wealthy. And as for Palin, don’t get me started! She is on record as saying that “we share in the wealth when the development of these resources occurs” in the context of Alaskan natural resources, which puts her “socialist” attacks in perspective, does it not?

Of course, Catholic social teaching also has a lot to say on this topic. From the Compendium of the Social Doctrine of the Church:

The economic well-being of a country is not measured exclusively by the quantity of goods it produces but also by taking into account the manner in which they are produced and the level of equity in the distribution of income, which should allow everyone access to what is necessary for their personal development and perfection. An equitable distribution of income is to be sought on the basis of criteria not merely of commutative justice but also of social justice that is, considering, beyond the objective value of the work rendered, the human dignity of the subjects who perform it. Authentic economic well-being is pursued also by means of suitable social policies for the redistribution of income which, taking general conditions into account, look at merit as well as at the need of each citizen.”

Some individual examples are also useful. In Quadragesimo Anno, Pope Pius XI wrote: “riches that economic-social developments constantly increase ought to be so distributed among individual persons and classes that the common advantage of all…. one class is forbidden to exclude the other from sharing in the benefits.” He called socialism and unfettered capitalism as the “twin rocks of shipwreck.” And Pope John XXIII in Mater Et Magistra argued that “the economic prosperity of a nation is not so much its total assets in terms of wealth and property, as the equitable division and distribution of this wealth.”

Can some of the many Catholic advisers to McCain please pass on this simple message? Thank you.

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