WashPo: Redistributing wealth upward

[alexey]

Not that this is news to people at this point, but might as well... Although I think he is a bit over the top with the "distributing life" thing.

http://www.washingtonpost.com/opinions/harold-meyerson-the-party-that-truly-believes-in-redistribution/2012/09/25/c5877b7a-0740-11e2-afff-d6c7f20a83bf_story.html?hpid=z2

Which is the more redistributionist of our two parties? In recent decades, as Republicans have devoted themselves with laser-like intensity to redistributing America’s wealth and income upward, the evidence suggests the answer is the GOP.

The most obvious way that Republicans have robbed from the middle to give to the rich has been the changes they wrought in the tax code — reducing income taxes for the wealthy in the Reagan and George W. Bush tax cuts, and cutting the tax rate on capital gains to less than half the rate on the top income of upper-middle-class employees.

The less widely understood way that Republicans have helped redistribute wealth to the already wealthy is by changing the rules. Markets don’t function without rules, and the rules that Republican policymakers have made since Ronald Reagan became president have consistently depressed the share of the nation’s income that the middle class can claim.

Part of the intellectual sleight-of-hand that Republicans employ in discussions of redistribution is to reserve that term solely for government intervention in the market that redistributes income downward. But markets redistribute wealth continuously. In recent decades, markets have redistributed wealth from manufacturing to finance, from Main Street to Wall Street, from workers to shareholders. Rules made by “pro-market” governments (including those of “pro-market” Democrats) have enabled these epochal shifts. Free trade with China helped hollow out manufacturing; the failure to regulate finance enabled Wall Street to swell; the opposition to labor’s efforts to reestablish an even playing field during organizing campaigns has all but eliminated collective bargaining in the private sector.

The conservative counter to such liberal cavils is to assert that the market increases wealth, which will eventually descend on everyone as the gentle rains from heaven. Decrying such Keynesian notions as unions or federally established minimum wages, hedge fund guru Andy Kessler recently argued in the Wall Street Journal that “it is workers’ productivity that drives long-term wage gains, not workers’ wages that drive growth.”

But Kessler assumes — and this is the very essence of the “trickle-down” argument — that workers reap the rewards of productivity gains. Believing and asserting that requires either ignorance or willful denial of economic history. The only time in U.S. history when workers substantially benefited from productivity gains was the three decades that followed World War II, when median household income and productivity gains both increased by 102 percent. Not coincidentally, that was also the only period of genuine union power in U.S. history, and the time when the tax code was at its most progressive. During the past quarter-century, as progressivity was lessened and unions diminished, all productivity gains have gone to the wealthiest 10 percent, according to research published by the National Bureau of Economic Research. In 1955, at the height of union strength, the wealthiest 10 percent received 33 percent of the nation’s personal income. In 2007, they received 50 percent, Economic Policy Institute data show.

If that’s not redistribution, I don’t know what is.

The problem is not just that everyone but the wealthy is claiming a smaller share of the nation’s income; the absolute amount of income they’re getting is declining as well. Median household income has dropped to the levels of the mid-1990s, according to Pew analysis of census data, while the income of the 400 wealthiest Americans rose by a tidy $200 billion last year, according to data released this month by Forbes magazine.

If that’s not redistribution, I don’t know what is.

Indeed, the United States has experienced an upward redistribution so profound that it affects far more than incomes. Whole sectors of the economy and regions of the country have been decimated by these economic changes. The descent in all manner of social indexes is most apparent among poorly educated whites. Conservative commentator Charles Murray has documented in his new book the decline in marriage rates and family stability within the white working class. And now, as the New York Times’ Sabrina Tavernise has reported, that decline includes longevity as well. While other Americans’ life expectancy has advanced, the life expectancy of whites without high school diplomas has declined since 1990 — by three years among men and five years among women.

The market is not just redistributing income in the United States, then. It is redistributing life.

So, which party can claim credit for this — the real redistribution this nation has experienced over the past 30 years? Many Democrats have been complicit in this calamity by their indifference to the consequences of deregulation and trade. But the trophy for promoting the policies that have redistributed wealth, family stability and longevity upward goes to the Republicans, whose standard-bearers are championing even more radical versions of these policies today.

A pro-life party? More like its opposite.

[PeterMP]

I think more and more people are understanding that government policies can redistribute wealth up and down.

[alexey]

I think more and more people are understanding that government policies can redistribute wealth up and down.

At the same time, "government policies" should not be viewed as being separate from the "Free Market".

Government should not distort incentives that allow the free market to maximize stuff, but it should also ensure that free market incentives are aligned to maximize the right stuff.

[SnyderShrugged]

At the same time, "government policies" should not be viewed as being separate from the "Free Market".

Government should not distort incentives that allow the free market to maximize stuff, but it should also ensure that free market incentives are aligned to maximize the right stuff.

who gets to decide the "right stuff"?

[alexey]

who gets to decide the "right stuff"?

In theory, voters.

[PeterMP]

At the same time, "government policies" should not be viewed as being separate from the "Free Market".

Government should not distort incentives that allow the free market to maximize stuff, but it should also ensure that free market incentives are aligned to maximize the right stuff.

I agree. I think there used to be an idea of possible neutrality with respect to wealth distribution and government policies in many people's minds.

Heck, I used to think like that.

I think the days of many people thinking like that are ending.

[Corcaigh]

who gets to decide the "right stuff"?

The people who already have the most money and power.

[Larry]

The people who already have the most money and power.

There is class warfare. My class won.

[alexey]

I agree. I think there used to be an idea of possible neutrality with respect to wealth distribution and government policies in many people's minds.

Heck, I used to think like that.

I think the days of many people thinking like that are ending.

Yes... I think that, generally, natural forces in a free market system distribute the wealth in a way that makes rich richer and poor poorer. We have seen this from industrialization to the Great Depression, a reversal with the New Deal, and gradual dismantling of New Deal policies up to the Great Recession. The Great Recession, however, did not produce a New Deal 2.0 because government was able to prevent things form crashing by giving money to the banks, because ability to do marketing and messaging has improved a great deal, and because Obama cannot go against Wall Street.

Also the idea of government working for the people to solve problems of the Great Depression has been replaced with the idea of government getting in the way of economic progress.

I want to be optimistic about a change in people's thinking, but it seems that the idea of a Free Market is too linked with the idea of Individual Freedom in people's minds. Policies of the New Deal would be viewed as outright communistic nowadays. It seems that goal posts have been moved.

[mistertim]

I can't give much credence to this article since the author repeatedly misspells "job creators" as "the rich".

[Larry]

I agree. I think there used to be an idea of possible neutrality with respect to wealth distribution and government policies in many people's minds.

Oh, I think there still is an idea of neutrality. (Well, maybe not neutrality, but optimum. Complete and total laisez-faire might be "neutrality". At least to some people. I think that very few would claim that it's optimal.)

I just think that that place is now labeled "Socialism".

[The Sisko]

I agree. I think there used to be an idea of possible neutrality with respect to wealth distribution and government policies in many people's minds.

Heck, I used to think like that.

I think the days of many people thinking like that are ending.

I always felt government was slanted somewhat towards the haves instead of the have nots. As long as it wasn't too egregious I was fine with it. After all, that's part of the benefit of being wealthy or upper middle class that encourages the best and brightest to maximize their talents. However I've seen the balance shift over the years, finally culminating with the Citizens United decision that basically codified the system of institutionalized graft that passes for our government nowadays. No matter who wins in November the longer-term die is cast and we might as well hand over the reigns to the Grand Oligarch's Party.

[DCsportsfan53]

It's sad that articles such as this get passed over because it doesn't rile people up on the talking points they heard their team's head coac....sorry I meant party's leaders talk about on TV. The landscape has shifted dramatically in the last few decades, that's for sure. By today's standards FDR is a flat out communist and Reagan is a socialist. It's been a long, organized media attack perpetrated by those at the top levels of society to change the framing of how we view our govt and its role and unfortunately, it's worked.

[AsiaticSkinsFan]

I always felt government was slanted somewhat towards the haves instead of the have nots. As long as it wasn't too egregious I was fine with it. After all, that's part of the benefit of being wealthy or upper middle class that encourages the best and brightest to maximize their talents. However I've seen the balance shift over the years, finally culminating with the Citizens United decision that basically codified the system of institutionalized graft that passes for our government nowadays. No matter who wins in November the longer-term die is cast and we might as well hand over the reigns to the Grand Oligarch's Party.

im a very left leaning libruh but its bunk to pin this all on the republicans. The democrats had their hand in it too. The great period of the 90s under Clinton was only fueled by a tech bubble that busted and put many broke, while the already wealthy kept and made more money. Obama is not doing much of anything to stem this tide either.

The American public have to take blame as well. We elected these people into office.

With that said, America is coming close to resembling the "roaring 20s" when most of the wealth was sitting at the top while everyone ate crumbs

[endzone_dave]

Crank the capital gains tax to 30% and that would be a good start.

I think labor unions have done more harm than good. Their ties to the mob, nepotism, violence, and "that's not my job" has driven a lot of jobs overseas.

20% of kids don't graduate. Between our own uneducated and the steady stream of cheap labor moving into this country, it makes it hard to keep wages on cheap jobs high.

Plus, somehow our government needs to find a way to keep CEOs from setting their own outrageous salaries.

[Larry]

It's sad that articles such as this get passed over because it doesn't rile people up on the talking points they heard their team's head coac....sorry I meant party's leaders talk about on TV. The landscape has shifted dramatically in the last few decades, that's for sure. By today's standards FDR is a flat out communist and Reagan is a socialist. It's been a long, organized media attack perpetrated by those at the top levels of society to change the framing of how we view our govt and its role and unfortunately, it's worked.

I think a big part of it is the demonization of labor. Especially unionized labor.

[HOF44]

I think a big part of it is the demonization of labor. Especially unionized labor.

It is a shame too. There really is a place and need for organized labor. However the problem is the unions of the past took advantage of the situation and earned themselves a bad rap. Bad actions do not negate the need for principled labor organization's though.

[AsiaticSkinsFan]

Crank the capital gains tax to 30% and that would be a good start.

I think labor unions have done more harm than good. Their ties to the mob, nepotism, violence, and "that's not my job" has driven a lot of jobs overseas.

20% of kids don't graduate. Between our own uneducated and the steady stream of cheap labor moving into this country, it makes it hard to keep wages on cheap jobs high.

Plus, somehow our government needs to find a way to keep CEOs from setting their own outrageous salaries.

nonsense. Jobs have been going overseas because they dont have to pay foreign workers in 3rd world countries a decent salary and give them benefits.

Unions have a lot of bad to them, but the good far outweighs the bad. Its not even close.

[Larry]

Crank the capital gains tax to 30% and that would be a good start.

I actually read an article that seemed to make a lot of sense, to me. I'm going to try to paraphrase it.

The author's assertion was that actually, high marginal tax rates lead to economic growth. (Because they encourage capital, when they make a profit, to "let it ride", so to speak.)

The way I'll try to paraphrase things is to imagine two companies, who have both made $10M in profit. It's getting close to the end of the year. One company is in the 1960s, and one if in 2010.

Now, 2010Corp has several options.

• They can leave the money in the company. Buy some new trucks, hire some new workers, open a new branch office. That might produce more money, down the road. If there's customers for the expanded company. That said, though, it might not.
  
• They can just let the cash sit in the company's bank account. But if they do that, then it's a profit, and the company has to pay tax on it. Like, 35% tax. (Businesses try very hard not to show any profit at all, on paper, because the taxes are so punitive.) But leaving the money in the company's name, for a lot of companies, isn't a horrible option. There Are Ways for the company to sit on huge piles of cash, without actually having to admit that they made a profit, and paying taxes on it.
  
• Or he can just give the money to himself. If he does that, then the tax is like 25% (if he calls it income). Or more like 15% (if he calls it capital gains). There's not much tax. And, paying the money to himself has another big advantage: It makes the money harder for somebody else to get at. If something bad happens. There's a lawsuit. Factory burns down. The economy collapses. The pension fund gets wiped out, and retired workers are demanding their pensions. If something bad happens, then all assets that are in the corporations name can be confiscated. But any assets that aren't in the company's name, are a LOT tougher for creditors or lawyers to get at. (That's one of the reasons for having a corporation in the first place.) Any money I pay to myself is money that people can't get at, if something goes wrong.

Now, 1960Corp also has choices, but the choices are different.

• If he leaves the money in the corporation's bank account, then it will get taxed as corporate profit. The government will take 35% of it. In the 60s, hiding that money was a lot tougher.
  
• He can give the money to himself. But if he does that, the taxes are huge. The government will take like 75% of the money.
  
• Or the company can spend the money, and then there's no taxes at all. Money spent isn't a profit.
  
  1. Now, they can spend the money on something like marble sinks for the executive bathroom. They avoid taxes that way. It's an expense.
     
  2. Or they can spend it expanding the business. Advertise. Buy some more company trucks. Open a new office. Expand the factory. Hire some more crews. That option avoids the taxes. And it might result in the company making $15M, next year. My bank account won't get any bigger (therefore I don;t have to pay any taxes, either). But now, instead of being the owner of a company, I'm the owner of a bigger company.

In short, the assertion was that low marginal taxes on income and corporate profits, encourages business owners to pay themselves, whenever there's a profit. There's very low taxes, and it protects the money from possibly risk.

Whereas high marginal rates encourages business owners to re-invest their profits. To "spend" them making the company bigger. To keep the money in the company.

And, the author asserted, the latter also benefits the employees of the company more.

----------

Yeah, I'm reading a lot into one article that I can't even find any more.

But it does seem to at least be a theory that seems to make sense, to me.

---------- Post added September-27th-2012 at 11:28 AM ----------

It is a shame too. There really is a place and need for organized labor. However the problem is the unions of the past took advantage of the situation and earned themselves a bad rap. Bad actions do not negate the need for principled labor organization's though.

I do agree with you. At least some unions, of the past, definitely earned a bad rep.

(I think that too much power, on either side of the table, is a problem.)

[gbear]

Oh, I think there still is an idea of neutrality. (Well, maybe not neutrality, but optimum. Complete and total laisez-faire might be "neutrality". At least to some people. I think that very few would claim that it's optimal.)

I just think that that place is now labeled "Socialism".

Count me amongst those who note we live in a socialist economy. We, the people, control the means of production and distribution of most goods and services. We do it every time we regulate.

I have made this point many times on healthcare where I was diagnosed by a state licensed doc, prescribed FDA approved drugs gotten from a state licensed pharmacy and administered in a state regulated infusion center. None of this is new either.

[Larry]

Count me amongst those who note we live in a socialist economy. We, the people, control the means of production and distribution of most goods and services. We do it every time we regulate.

I have made this point many times on healthcare where I was diagnosed by a state licensed doc, prescribed FDA approved drugs gotten from a state licensed pharmacy and administered in a state regulated infusion center. None of this is new either.

Well, near as I can tell, the definition of "socialism" is the belief that the government should have the objective of making things as good as possible for the maximum number of citizens.

Which makes it hard for me to figure out how that supposedly is a bad idea.

[The Sisko]

im a very left leaning libruh but its bunk to pin this all on the republicans. The democrats had their hand in it too. The great period of the 90s under Clinton was only fueled by a tech bubble that busted and put many broke, while the already wealthy kept and made more money. Obama is not doing much of anything to stem this tide either.

The American public have to take blame as well. We elected these people into office.

With that said, America is coming close to resembling the "roaring 20s" when most of the wealth was sitting at the top while everyone ate crumbs

I agree that it's not just the GOP but I put the split at say, 70/30 so I consider them to be primarily responsible but not solely responsible. Of course to some degree I also blame the voting public for not paying adequate attention to the issues, holding pols accountable, and falling for the "Okie doke" way too often...and yes, I do include myself in that last group.

The reason I don't include the voters in that 70/30 split is because I don't know how to fairly apportion blame on that one. After all, we've been subjected to boatloads of advertising, propaganda and obfuscation funded by seemingly unlimited amounts of money donated by wealthy interests for some time now. This means pols on both sides of the aisle and in the middle spend a large percentage of their time selling votes...'er fundraising. Moreover the constant barrage of propaganda has meant voters have often backed policy contrary to their own best interests. But hey, the connection between lowering taxes, decreasing regulation and higher economic growth seems to make such good sense. Unfortunately for the reasons Larry pointed out, it just ain't so.

Ultimately I think the only way to balance the playing field would be to abolish campaign contributions and provide all the candidates with public campaign financing. The problem is, that would probably require a constitutional amendment and that's just not going to happen.

[gbear]

Larry, from an economics standpoint, socialism is when the people control the means of production or distribution of a good or service. I would think the "people" would likely take a utilitarian approach like the one you state as greatest good for the greatest number.

However, I also recognize within this sect of people there are many who think the greatest good can only happen with some concentration of wealth allowing for high capital investment and coordination. How much concentration and how to ensure the money remains flowing through all of the economy is a sticky debate not yet resolved to anyone's satisfaction.

I also recognize with in this utilitarian approach there are many who would choose "goods" which may not reflect the greatest good for the greatest number. There are many, including myself, who think a society may be measured best by what it does for those who need it most. Doing so may yield different results. For example, my wife and I foster sick kids. My daughter whom we adopted, has easily rung up a million dollars in hospital bills. My son, also adopted, likewise had high medical bills. How many gave up food and comfort so they could live? Could lives have been saved? maybe more than 2? In many societies around the world, both my kids would be dead.

So, if one believes as I do that society writ large is best measured in history by what it did for those who most needed, then I hope my kids should be a notch in the "done good" category. Not a day goes by when I am not thankful for all society has given my family.

[ncr2h]

I'm struggling to understand how having the rich pay less, but still the overwhelming majority, of the income tax is "upward redistribution". Isn't that being a little bit arrogant? Like poor people have some sort of minimum amount that they are required to receive, and if they receive less it is upward redistribution? If your parents give you a less expensive birthday gift than they did last year, are they being selfish?

Are the poor really getting poorer? What's "poorer"? Their quality of life seems like it should be improving tremendously - Microwaves, TVs, prepaid cell phones, internet access...these are all remarkably cheap and can likely be obtained with ease by anybody with a minimum wage job and some discipline. If a poor person used to be able to buy a crappy microwave with 50 hours of work, but today can buy a solid microwave for 10 hours of work...are they really getting poorer?

Utilitarian arguments don't really appeal to me. If you're asking for a handout, I don't want you to tell me why it's in my best interest to give you money. So I wouldn't be interested in wealth redistribution even if it made our economy come roaring back. What's the real moral reason for demanding others' money?

[alexey]

I see a significant difference between government owning means of production and government regulating means of production.