Redistribution is part of governing

Danville Advocate Messenger 12/11/12

            When a video surfaced last September showing Mitt Romney dismissing 47% of voters as irresponsible freeloaders, his panicked staffers scrambled to find something they could hit back with. They found an audio clip from 1998 in which Obama said that “I actually believe in some redistribution, at least at a certain level to make sure that everybody's got a shot."

            It seems that Obama has avoided using the toxic word “redistribution” in public since then. But the right-wing media howled over this 14-year old clip like hounds closing on their prey.

            Romney rushed out to tell Fox News: "I know some believe the government should take from some to give to the others. I think the president makes it clear in the tape that was released today that that's what he believes. I think that's an entirely foreign concept."
            The GOP propaganda machine is very effective at dirtying the words it uses to describe its opponents. Think of what it has done to words like “government” and “public.” It wants us to hear “redistribution” as an alien Euro-Kenyan ‘socialist’ word that can hurt anyone by association.

            In reality, redistribution of wealth and income is an inescapable, essential function of government (yes, even under Republicans).  It happens in many ways.

            For instance, all the production processes that jointly create our gross domestic product (GDP) utilize expensive public goods and services on a massive scale. These goods and services include education, transportation systems, domestic and international security, the legal system (including courts), publicly funded research, communication networks, and numerous agencies that promote public health, monitor the safety of consumer products and protect our environment.

            The bill for these goods and services comes mostly in the form of taxes and fees. So we, as citizens with a democratic government, must decide how to divide up that bill. Should everyone pay, in the same amount or at the same rate regardless of what benefits they derive, or unequally according to some criterion, or should we rely more on user fees (as with toll roads)?

Private income is what’s left after paying the public bill. So whatever payment scheme our country adopts, it will amount to a government distribution of income, and cumulatively, of wealth.  Every time we change this scheme by lowering, raising or imposing new taxes and fees, we redistribute income and wealth.

The continuing battle over tax rates is mostly about alternative redistributions of income once the Bush tax cuts expire at the end of this year. President Obama wants the wealthiest of Americans (the “2%”) to pay a bigger share of the bill for public goods and services. One important means of achieving this would be letting the (2001-03) Bush tax cuts expire for the top 2%.

The Bush tax cuts were a massive upward redistribution of income that continues to this day. As the Economic Policy Institute points out, “[In 2010] the top 0.1% of earners (i.e., making over $3 million) received an average tax cut of roughly $520,000, more than 450 times larger than the share received by an average middle-income family.”

A major ingredient of the Bush cuts was a drop in the tax rate for long-term capital gains and dividends from 20% to 15%. (Long-term capital gains are the profits from selling stock or other assets held longer than one year. Capital gains and dividends are often called “investment” or “unearned” income, in contrast to income “earned” by actually working.)

Capital gains are a major source of income for rich Americans. As the Washington Post’s Steven Mufson and Jia Lynn Yang explain:  “Over the past 20 years, more than 80 percent of the capital gains income realized in the United States has gone to 5 percent of the people; about half of all the capital gains have gone to the wealthiest 0.1 percent” (9/11/11).

The Tax Policy Center predicts that in 2013 the 534,000 taxpayers with annual income over $1 million will receive an average of $782,000 in investment income. They will pay 15% tax on this income, 20% less than they would have paid if they had worked for this money. Our tax system’s preferential treatment of the investor class is a striking example of upward redistribution.

The highest marginal income tax rate was 91% during the Eisenhower years, 70% under Nixon, 50% under Reagan, 39.6% under Clinton, and is 35% since Bush. The capital gains rate was 39.9% under Carter, 28% under Reagan, 20% under Clinton, and is 15% since Bush.

So the Bush tax cuts continued a 50-year trend of wealthy Americans paying less and less of the bill for public goods and services. President Obama proposes to raise the current top income tax rate from 35% to 39.6% and the capital gains tax from 15% to 20%, while taxing dividends just like ordinary income.

This would be a modest step in reversing 50 years of upward redistribution of income and wealth.