#164 The Redistribution Scheme

By D. Arnott | March 15, 2023
#164 The Redistribution Scheme

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Most fiscal policy has become a redistribution scheme because the benefit actually accrues not to the government, but to those on whom the revenue is spent.  That’s not Biblical.

When writing about taxes, Gregory Mankiw writes, “The benefit actually accrues not to the government, but to those on whom the revenue is spent.”  So pretty much all fiscal policy is simply a redistribution scheme.  

Private Ownership of Goods, and Grades

My students don’t want their grades redistributed.  I’ve offered many times, but they don’t want to give part of their grade to a student who made the choice not to attend class.  See, this is a really interesting social science experiment because we’re talking about redistributing wealth in a very close-knit environment.  They KNOW very well, their fellow students who made a choice to skip class, and they want them to be responsible for their own behavior.  

In class, we recently heard Tim Groseclose on a PragerU video explaining that the Laffer Curve tops at 33%.  Meaning, if a society’s taxing level is under 33%, people will continue to offer their value-creating labor in return for payment.  But when it’s GREATER than 33%, they begin to do what Ayn Rand calls “shrugging” in her famous book Atlas Shrugged.  Look, we all shrug at some point.  Christina Romer, who was the chief economist for President Barack Obama, claims that as a group, society shrugs when more than 33% of their labor reward is taken from them.  Her article was published in the American Economic Review.  

 

Largesse from the Public Treasury

Alexander Fraser Tytler said, “A democracy cannot exist as a permanent form of government. It can only exist until the people discover they can vote themselves largess out of the public treasury.”  There is a great danger this is happening now.  

On national election night, you have probably watched endless analyses of the smart map, reporting the smallest details about voting patterns in each district.  When you look at those red and blue sections on the map, you notice quickly that the “redistributionist-leaning” crowds who populate cities vote FOR policies that increase the size of government.  While those NOT receiving funds from the public trough, vote against it.  This does not surprise economists, because we expect the expression of self-interest.  What disappoints us, is the lack of individual ability to seek a higher standard than simple self-interest.  Every day, we choose either to reach for the higher angels of our character or slide to the lower levels.  Just makes you wish people would reach higher, doesn’t it?

A recent column by Wall Street Journal Editorial Board is titled How America Soaks the Affluent.  It shows how the top 1% of earners paid over 42.% of the country’s income taxes.  That’s up from about 33% twenty years ago.  That same 1% earned just over 22.% of the nation’s adjusted gross income, which means the share of taxes paid by the top 1% as a group is roughly double their share of income. Whatever else you say about the current tax code, there’s no denying that it is steeply progressive.  Phil Gramm has pointed out that the US has the most progressive taxing system in the world!

I’ve pointed out that the rich pay their FAIR SHARE, in my podcast #96 titled Tax the Rich.  But apparently, the Democrats have found that their talking point works, despite its long distance from reality.  The bottom half makes about 10% of the total adjusted gross income in the nation, and pays just over 2% of all income taxes.  Twenty years ago, they paid almost 5% of all income taxes.  Get the direction: The US taxing system is becoming even more progressive.  But don’t expect the Dems to abandon their favorite fable about the rich not paying “Their fair share.”  

That leads a reasonable person to ask, “When will the rich shrug?”  They have options, you know.  For interstate movements, you can reference the movements from high tax states like California and New York, to low-tax states like Texas and Florida.  

From another WSJ article this week, “Residents of the seven highest-taxed blue states are in financial trouble. California and New York impose income tax rates that can exceed 13%, but their budget deficits are mounting. Yet Florida, Tennessee, and Texas impose no state income tax and all have sturdy surpluses. Their coffers are so full, they are looking to cut taxes. How is that possible?”  Guess who wrote the article I just quoted?  The aforementioned Arthur Laffer, along with Stephen Moore. 

When these taxpayers will shrug and leave the US is a frightening question.  In Ayn Rand’s book, they used a science fiction time tunnel to escape.  Since that does not exist yet, they will simply trundle off to Monaco and the Cayman Islands.

 

Political Economics

Andy Kessler, writing in the Wall Street Journal, complains about what he calls The Rise of Kickback Capitalism.  The subtitle reads What the government does best is throw your tax money at favored constituents.  Now you understand why I began this podcast with the statement from Gregory Mankiw about taxes NOT going to the government, but to the people on whom they are spent.  

In the recent state of the union address, President Biden claimed, “I’m a capitalist,” then fell back on the old bromide about the rich not paying their fair share.  Good grief!  

“Real capitalism is, by definition, a meritocracy in which money flows to those providing the highest returns.” Collectivism always fails for a lack of meritocracy. That’s where my sophomores enter the picture.  They LIKE a meritocracy.  It happens to align with the Christian worldview of private property, which America’s rugged individualists have claimed historically.  Yes, there IS an alignment of Christianity and economics, around the idea of freedom. 

Just a few of the kickbacks Mr. Kessler refers to: “Start with up to $20,000 in student-loan forgiveness for tens of millions of voters who took on debt to overpay for college. Those who saved and paid retail, get nothing. While it’s likely to be struck down by the Supreme Court, it’s also a kickback to universities that constantly raise prices and hire more administrators.” 

Look, we’re all for free speech, but when it’s expressed by crony capitalists who feed at the public trough, it can get nauseating.  Since Covid hit, the U.S. has deployed $11 trillion in spending, loans, disbursements, and asset purchases. In finance classes at Dallas Baptist University, we teach the idea that markets allocated capital.  They do, but they don’t have near the return on investment that can be earned by lobbying efforts. 

Referring to Mr. Kessler again, “It’s hard to summarize all the kickbacks in the $1.9 trillion 2021 America Rescue Plan: $350 billion for state and local government and mostly public union employees, up to $91 billion for pension guarantees, another $36 billion to bail out union pension funds. And don’t forget $1,400 means-tested stimulus checks.”  

In a February executive order, Mr. Biden “embedded a focus on equity into the fabric of federal policymaking” claiming it will lead to “better decision-making and more equitable outcomes” he failed to point out that it would provide more largesse to favored constituents.  Equitable outcomes are collectivist, with capital diverted unproductively to buy votes. Without individual empowerment, meritocracy vanishes and capitalism stops working. 

Jared Bernstein, who heads the President’s Council of Economic Advisers, recently admitted the nature of the redistributionist state when he said, “Sometimes it’s not necessarily all kosher economics, sometimes it’s political economics.”  Sometimes.  Or, with this crowd, just about all the time. 

 

E Pluribus Pluribus

So the politicians have been bought off by multiple labor unions, chief among them, the teachers.  They’re courting every small identity group they can identify, based on ethnicity, sexual persuasion, and demographics.  But here’s the problem: Breaking the American electorate into smaller interest groups is not Biblical.  Galatians 3:28 reads, “There is neither Jew nor Gentile, neither slave nor free, nor is there male and female, for you are all one in Christ Jesus.”  We used to be E Pluribus Unum, but the political economics referred to by Mr. Bernstein is changing the formula to E Pluribus Pluribus.  In politics, they say “Follow the money.”  In economics, we say, “Follow the self-interest.”  

Private Property

That has some pretty serious private property and theft implications.  When the government is using tax revenue to fight evil, it’s generally considered to be the correct view.  But when private property is taken simply for redistribution, that violates the eighth commandment against stealing.  

Federal revenue last year came in at 19.6% of GDP, a level reached only three times before. No matter, Mr. Biden always wants more of your money to redistribute to others: That’s political economics.  Or as we call it in the Christian worldview: The fallen nature. 

FEAR GOD
TELL THE TRUTH
EARN A PROFIT

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