Tuesday, October 19, 2010

Dept. of Piling On (Mankiw Edition)

I see that everyone is still taking shots at Greg Mankiw's yellowing column* last week about his personal stake in low taxes, including (via Chait) Michael Kinsley, so I guess it's not to late to make my contribution, since I must have read a dozen reaction posts & columns and, so far, I haven't seen this elsewhere.  It's in the last paragraph:
Reasonable people can disagree about whether and how much the government should redistribute income. And, to be sure, the looming budget deficits require hard choices about spending and taxes. But don’t let anyone fool you into thinking that when the government taxes the rich, only the rich bear the burden. 
Did you catch it?

Redistribute income.  This is, to me, more slippery than the various phony accounting and questionable assertions about incentives that everyone has been attacking. 

The thing is, very little of government spending is really about redistributing income.  It does, I suppose, depend on how one counts Social Security and Medicare, which account for very large amounts of spending (but not spending from the taxes that Mankiw is worried about).  I wouldn't count those programs as redistribution, but I could, I suppose, see the argument for it.  At any rate, as I said, that doesn't have anything to do with income, capital gains, or inheritance taxes. 

What government does spend a lot of money on (outside of SS and Medicare) are things that we all benefit from, rich and poor.  The big ticket item, of course, is the military, but it also includes everything from NASA to highway construction to national parks to running the courts.  I'm not sure whether most people would consider things like student loans and farm support to be "redistribution."  Actual stuff which I would say is clearly redistributive in nature, such as Medicaid, CHIP, and safety net programs, are around one fifth of total federal spending.  Include Social Security and Medicare (which, again, are not exactly redistributive and which have their own revenue streams that Mankiw isn't talking about), and you get to about 50%, but no more.  Want a primer on this stuff?  You want the Center on Budget and Policy Priorities.

The point, in case I'm not being clear, isn't that Mankiw should support more federal spending or higher taxes; that's his call.  The point is that when we pay taxes, especially income taxes, most of it is for the government to spend it on our behalf for things that, collectively, we want.   That doesn't mean it's well spend, or what Mankiw would individually want, or that he values the last dollar of national defense higher than he'd value whatever he would do with that dollar if he wasn't taxed...but it does mean that the government isn't taking his money and sending it to poor people.  And therefore referring to federal spending as "redistribution" is, in my view, pretty slimy.


*Yellowing, kids, because old newsprint turned yellow.  Not a reference to yellow journalism. 

6 comments:

  1. Of course it's slimy. But to listen to Republicans you'd think that's 95% of what the government does. And it sure works as a selling point, despite its sliminess.

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  2. referring to federal spending as "redistribution" is, in my view, pretty slimy.

    It sure is, and I guarantee that every single Republican politician - from the dog catchers and city council members to U.S. Senators - has used this formulation at one time or another during their careers.

    And The Gloves Are Off is right, it works. Polls show that the public is clueless as to federal spending - they believe the lion's share goes to truly redistributive policies like food stamps and international aid. Meanwhile we have this constant drumbeat from the GOP, over decades, regarding "redistribution" and "welfare queens", etc. Surely the two are related.

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  3. See, I take the opposite view - I see almost everything the government does as redistribution. Sometimes it flows up, sometimes down, sometimes sideways. There's hardly anything about the function of government that in some was isn't taking money from one group of people and giving it to another group. But, since most of that doesn't change the 'income distribution', maybe it's not fair to call it redistribution.

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  4. Does the money have to go out the door to count as redistribution?

    Income before taxes is more skewed than income after taxes, which is to be expected in a progressive tax system. The tax system affects the distribution of income.

    Now, it's not much of a change. And, it's a perfectly reasonable argument to make that those taxes help pay for a number of things that are plain necessary for everyone to be able to make any money, so it could be that the system your taxes pay for actually allow for income to be skewed in the first place.

    Of course, one of the largest income-affecting portion of the tax system is the regressive mortgage interest deduction. So, it's a lot more complex than just the term "redistribution" implies.

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  5. IF I understand Matt Jarvis right, he may have made my point, but since I'm not sure, here goes: "redistribution" occurs in the share of income you pay in taxes. If taxes supported nothing but the village firehouse, and I paid a higher proportion of my income to fund it than you did, wouldn't our collective income have been redistributed?

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  6. I think the correct way to read Mankiw's "redistribution" comment is to apply it to the tax side of the equation, not to the spending side. He sees taxes as residtributive.

    And if you look solely at the federal income tax, he might have a small point. But if you look at our tax system broadly--federal income taxes, social insurance taxes, state and local taxes--the overall system is almost a proportional system.

    So even taking his point the way I think he meant it, he is still wrong.

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