If Inequality Is the Problem, Redistribution of Income in the Solution

Tulio writes: I’m not in favor of communism or redistributing income. I believe in wage growth for the lower and middle classes. I believe in higher taxes on the wealthy and on capital gains. I believe in more regulation of the market, support for unions, single-payer healthcare.

One by one.

I’m not in favor of communism or redistributing income.

I think the commenter is unclear on the concept here.

I believe in wage growth for the lower and middle classes. I believe in higher taxes on the wealthy and on capital gains. I believe in more regulation of the market, support for unions, single-payer healthcare.

I am curious about the commenter’s understanding of economics, although the vast majority of Americans are probably not even at his level.

I hope the commenter realizes that every single one of those things boils down to redistribution of income. I would also point out that every single person in the US who is opposed to redistributing income is also highly supportive of our present inequality.

The problem is inequality.

What is the solution to the problem of inequality?

The solution to inequality, always and everywhere, is redistribution of income. If you don’t redistribute income, you don’t get rid of the inequality. It really is that simple.

I believe in wage growth for the lower and middle classes.

Ok, this is going to cause some serious redistribution of income right there. Why do you think the business class, the rich and the Right always want to keep wages as low as possible, especially at the bottom end? Because money doesn’t grow on trees, that’s why.

Picture the economy like a pile of money surrounded by a hundred people. Everyone rushes in and grabs whatever they can. Now that they are standing around with the money in their hands, we just decided we are going to raise the wages at the lower end. That means those with the lowest and medium amounts of money from that pile are going to get more money. Where are we going to get the money to raise their wages? There is only one place to get that money and that is from the wealthy class that grabbed a lot more money out of that pile. Follow?

If it was possible to raise wages at the lower and middle ends without hurting the incomes of business and the rich, do you think the rich and business would fight it so hard?

I believe in higher taxes on the wealthy and on capital gains.

Ok, this is a complete contradiction. This is the very definition of redistribution of income right there. Raising taxes on the rich and capital gains is the same thing as redistributing income. This is how one redistributes income. One raises taxes on the rich and investors if you want to redistribute income downwards.

I believe in more regulation of the market

This tends to cut into the incomes of the business class, lowering their very high incomes. If you reduce the incomes of the rich business class, that tends to boil down to some sort of income redistribution or at least a reduction in inequality. A lot of this regulation is pro-investor, pro- homeowner and pro-consumer, so often there are real income gains at these levels as a direct effect of regulation on business.

support for unions

This is probably one of the most popular and time-tested ways of redistributing income. Unions are nothing more than income redistribution machines. Why do you think the rich and business hate unions so much? Do you think they hate unions for no reason? If unions didn’t cause the rich and business to lose one penny, do you think they would hate them so much?

single-payer healthcare

As a good general rule, this is typically done by raising taxes on workers, consumers, business or investors or simply income earners in general. In the US, the only way to do this is to raise taxes, and most proposals seem to involve raising taxes on the rich and investors.

Even when you have an across the board tax increase, there is a huge income redistribution effect from single payer because most people are now paying almost nothing for their health care, whereas before they were often paying huge portions of their incomes. So there is a real growth in disposable income especially at the lower and middle ends.

And an across the board tax increase is probably a wash at the lower and middle ends because they probably obtain more health care than they pay out in taxes. In other words, maybe they pay $1,000/yr increased taxes for single payer, but the average person probably uses $5,000/yr in health care resources. So they are getting $5,000 worth of health care for $1,000. It is a screaming deal.

At the higher end though, some rich people may be paying $20-30,00/yr more in taxes for single payer, whereas they may only be using $5,000/yr in health care, or they may actually be using $0 in health care, since they bought private insurance and use that instead of the national system.

The poorer you are, the better of a deal you get for your tax money. Many Americans at the lower end pay no taxes at all yet are able to reap quite a good amount of money’s worth in government services for $0.

The rich usually do not get their money’s worth for their taxes. That’s why they hate them so much. If you make $300,000/yr you may pay $90,000/yr in taxes. Most people with that income are not going to use anywhere near $90,000 in government services. They’re getting ripped off. Now you can see why the rich are so furious about taxation.

14 Comments

Filed under Capitalism, Conservatism, Economics, Government, Labor, Political Science, Socialism

14 responses to “If Inequality Is the Problem, Redistribution of Income in the Solution

  1. Another William Playfair Web

    I think by redistribution they think of the Cuban model of that……where they don’t raise taxes on assets, liquid and incoming liquid and assets, but they just raid the Rich’s mansion and take everything.

    Robert Reich has a new schtick on “saving capitalism” (I believe Bill Maher has bough into that as well- not that he is some great intellect) saying that unregulated capitalism- what we have now, is bound to fail and will be replaced if not repaired soon, by another Economic form/system.

    • TJF

      To Another William Playfair Web:

      Robert Reich has a new schtick on “saving capitalism” saying that unregulated capitalism- what we have now

      Presumably that’s just a selling point or buzz word for the idea as Reich knows that the US has substantial regulations on capitalism. They key issues are do they work and are they enforced equally? In many cases, far too often, the answer is no.

      Outright criminal fraud (EG punishable by jail time) was being committed at multiple levels by many companies before the financial crisis, the FBI even wrote a report on fraud in the mortgage industry in 2004. Enforcement agencies chose to not take action and even under a President whose election was likely a result of the crisis there were few people jailed for financial mortgage fraud. (One by my last count). Compare this to the previous (much smaller) financial crisis of S&L failures of the Late 80s / early 90s which saw more than 1,000 people sentenced to prison, even those who had connections to US senators.

      https://en.wikipedia.org/wiki/Keating_Five

      https://en.wikipedia.org/wiki/Charles_Keating
      http://www.theatlantic.com/magazine/archive/2015/09/how-wall-streets-bankers-stayed-out-of-jail/399368/

      “The more meaningful number is how many Wall Street executives have gone to jail for playing a part in the crisis. That number is one. (Kareem Serageldin, a senior trader at Credit Suisse, is serving a 30-month sentence for inflating the value of mortgage bonds in his trading portfolio, allowing them to appear more valuable than they really were.) By way of contrast, following the savings-and-loan crisis of the 1980s, more than 1,000 bankers of all stripes were jailed for their transgressions.”

      • Another William Playfair Web

        It’s a combination of both for instance Citizens United was in essence a raw deregulation.

        • TJF

          To Another William Playfair Web:

          for instance Citizens United was in essence a raw deregulation…

          I assume you are referring to the 2010 decision by the Supreme court..? That was a cause of deregulation for election campaigning – not financial deregulation and came 2 years after the financial crisis. I was against that decision (and believe it will be reversed in the next 4 years) but overall feel it has had a limited effect on society. The monied establishment candidate, Romney, lost in 2012 and didn’t even mark it to the Repub convention in 2016 (Jeb Bush).

  2. Tulio

    Redistributing income to me would mean raising taxes on the wealthy and then redistributing it via a guaranteed income for example. When conservatives fear socialism, that’s the sort of thing I believe they have in mind. Robbing Peter to pay Paul. I don’t think there’s anything wrong with getting rich and making lots of money if you fairly earned it and created a lot of value. Especially if you are employing lots of people with good jobs.

    Since the Reagan era, incomes has increasingly grown at the top while stagnating at the middle. So you can address that one of two ways, either Rob Peter to pay Paul, or you raise average incomes for the lower and middle classes.

    There are political solutions to raising incomes. We can stop for example importing cheap labor from abroad. This would put upward pressure on wages. We can raise the threshold income for overtime wages. Obama recently did this, but I don’t think he went far enough. Many people are on salary and don’t get paid more even if they have to work 60 hours a week. If employers had to start paying time a half for any hours over 40/week, workers would make more money, or employers would have to hire more people, which would raise demand for labor and thus raise wages. We can of course raise the minimum wage. We can give grants to students who need job training/education for the fields in high demand rather than importing H1B immigrants. We reverse the damage to unions done under Reagan.

    There are also other ways the government can help outside or wages. We need more affordable housing. Let’s cut Pentagon spending and subsidize the construction of more housing so that young people can build families. Unfortunately much of the construction happening is only for the higher end real estate because that’s what is most profitable.

    We can start regulating the price of drugs and health care services like other industrial nations do.

    I feel like so much can be done if we all just agree to raise taxes a bit and cut back on Cold War era spending on the military.

  3. Jason Y

    I strongly benefit from government programs, so I cannot criticize social programs past a certain point. I don’t really think people can earn enough cash to start a business or go to trade school or university.

  4. James Schipper

    Dear Robert

    Nobody likes to pay taxes, which creates an opportunity for the plutocrats to gain support for their anti-egalitarian policies. They will try to convince the majority that tax cuts will benefit them because then their take-home pay will be larger. it will be larger indeed, but taxes don’t go into a black hole in the capital city. They are spent. The question then is: Do you pay more in taxes than you get in benefits from government expenditure?

    The more unequal the distribution of income is, the higher the percentage of the population that will be net beneficiaries of the combination of taxes and government expenditure. If, say, 10% of the population has 70% of national income, then the richest 10% will pay 70% of all taxes if taxes are proportional to income, and more if taxes are progressive. If the richest 10% receive only 10% of government expenditure, then the other 90% are net beneficiaries of taxation. They pay only 30% of taxes or less, but they get 70% of government expenditure.

    Republicans don’t want you to ask 2 questions: Who pays taxes? and Who benefits from them? If people asked those questions, they would quickly realize that for the majority of the population the government is their friend. The government may take 2000 out of their left pocket, but if it puts 8000 in their right pocket, then they are better off by 6000. Republicans want you to believe that, if the government takes 5000 out of your left pocket, it will only put back 4000 in your right pocket and waste the other 1000.

    In addition to direct redistribution of income, the government can promote economic equality by more general measures, such as free primary and secondary education for everybody, loans for poor students, severe restriction on immigration, full-employment policies, limited trade with low-wage countries. The government cannot only make the post-market distribution of income more equal, it can also make the market distribution of income more equal.

    Instead, we are being told over and over again that in today’s “globalized world” there is nothing we can do to affect the market distribution of income. Of course, globalization is a policy, not a force of nature beyond our control. If free trade between a high-wage and a low-wage country will make the income distribution in the high-wage more unequal, then we can make that trade less free. Governments haven’t lost the power to restrict trade.

    Another thing that should be born in mind is that diversity is the enemy of equality. Diversity tends to replace class politics by identity politics. The primary concern then is no longer vertical equality, equality between classes, but horizontal equality, equality between races and ethnic groups. The question is then not How high is the pay of CEOs relative to the pay of ordinary employees?, but How many CEOs are members of this or that racial or ethnic group? Would the plutocratic Republicans be able to get about half of the votes if the US were an all-white country? I doubt it.

    Regards. James

  5. Jason Y

    Redistributing income among people who would waste the money is foolish. It’s like giving investment money to people who know nothing of business, they would get ripped off by every scam known to man.

    • Jason Y

      Some people cannot handle money. They’re poor for a reason. It’s almost a 100 percent chance they’d spend the money on foolishness if given money. Note, when I say foolishness It could mean being a party animal. On the other hand, it could be a case where the money isn’t saved or wisely invested in a business, since the person getting it has zero business education.

    • Jason Y

      One scam that might get a newbie would be paid visitors. You can pay say 10,000 people to visit your website. Of course, this isn’t from the Google or Bing company, but the ton of other companies out there into paid traffic. But they’re giving you trash traffic.

      How about another thing where someone buys real traffic, but they don’t know the science of business. Pretty soon, they haven’t come out ahead to make a profit and all the money is gone.

    • TJF

      To Jason Y:

      Redistributing income among people who would waste the money is foolish. It’s like giving investment money to people who know nothing of business, they would get ripped off by every scam known to man.

      So this raises the question of how to measure the ability of someone to prudently manage money..? Generally the US government doesn’t trust welfare recipients to manage money correctly. Hence we have vouchers for housing, food stamps which can only be used for certain food items, and medicaid which pays hospitals, doctors, and pharmacies directly.

      People on welfare can receive modest amounts of money – but that is generally used up to cover transportation, clothing and the like. Housing assistance, food stamps, and medicaid are all forms of income distribution but with restricted use.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s