Why Redistribution Fails
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Democratic presidential candidates, including Hillary Clinton and Bernie Sanders, along with progressive economists like Thomas Piketty and Paul Krugman, have made a case for redistributing income from the wealthy to the poor as a means of reducing inequalities in income and wealth. Meanwhile, public opinion polls show that voters reject programs of redistribution in favor of policies designed to promote overall economic growth and job creation. While voters are concerned about inequality, they are more skeptical of the capacity of the government to do anything about it without making matters worse for everyone.   In this Broadside, James Piereson explains why the voters are right and the progressive politicians and economists are wrong. As he demonstrates, the progressive case is based upon a serious fallacy: it assumes that the government is actually capable of redistributing income from the wealthy to the poor. For reasons of policy, tradition, and constitutional design, this is not the case. The United States currently has one of the more progressive income tax systems in the industrial world but it does little to redistribute income from the wealthy to the poor. One reason for this is that, though the government spends vast sums on programs to aid the poor, most of these funds flow to providers of services rather than to the poor themselves. Thus, whatever one may think of inequality, redistributive tax and spending policies are unlikely to do much to ameliorate it but will instead line the pockets of providers and advocates who wield great influence in Washington.
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ENCOUNTER BROADSIDES Inaugurated in the fall of 2009, Encounter Broadsides are a series of timely pamphlets and e-books from Encounter Books. Uniting an 18th century sense of public urgency and rhetorical wit (think The Federalist Papers, Common Sense) with 21st century technology and channels of distribution, Encounter Broadsides offer indispensable ammunition for intelligent debate on the critical issues of our time. Written with passion by some of our most authoritative authors, Encounter Broadsides make the case for ordered liberty and the institutions of democratic capitalism at a time when they are under siege from the resurgence of collectivist sentiment. Read them in a sitting and come away knowing the best we can hope for and the worst we must fear.
Beginning
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The chart illustrates two broad points. First, the wealthiest groups gradually increased their share of national income (both in pre- and after-tax and transfer income) over this 30-plus-year period; and second, federal tax and spending policies had little effect on the overall distribution of income.
Across this period, the top 1 percent of the income distribution nearly doubled their share of (pretax) national income, from about 9 percent in 1979 to more than 18 percent in 2007 and 2008, before it fell back after the financial crisis, to 15 percent in 2010 and 2011. (Some studies suggest that by 2014, it was back up to 18 percent.) Meanwhile, the top 10 percent of the income distribution increased their share by a third, from about 30 percent in 1979 to 40 percent in 2007 and 2008, before it fell to 37 percent in 2011. This was a secular trend in the distribution of national income that persisted throughout different presidential administrations and tax regimes. The path was smoothly upward for both income groups across the period, with temporary peaks and troughs corresponding with business-cycle rallies and recessions. Economists have offered different theories to explain the trend, though most agree that the causes lie in several overlapping factors, including globalization, technological change, record stock-market gains, and increasing premiums paid to highly educated workers.
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