Politics Of Economic Redistribution, RIP

By Michael Barone, The Daily Signal | December 07, 2024

Whatever happened to the Democrats’ reputation as the party favoring the working man? Put another way, what happened to the Democrats as the party promising economic redistribution from the rich to the average man?

Those are questions that Democrats are asking after Vice President Kamala Harris’ decisive, but not landslide, loss to President-elect Donald Trump.

Her economic policies were obviously thin gruel. Her $25,000 payment to first-time homebuyers would be vacuumed up by sellers, her ban on “price gouging” was directed at notoriously competitive grocery chains, and her call for restoring the pandemic-era refundable child tax credit targeted a policy whose demise sparked no visible protest.

These barely perceptible policy proposals had no perceptible political effect. Exit poll evidence suggests that Harris ran slightly better than average with high (>$100,000) earners.

Nor is it obvious that left-wing Sen. Bernie Sanders’, I-Vt., postelection suggestions—to help working-class Americans by raising the minimum wage and lowering health care costs—would have fared better. Few minimum wage earners are heads of households, and voters are suspicious of proposals to reduce out-of-pocket health care costs.

There are two big problems for those who push the politics of economic redistribution. First, the United States already has a highly redistributive tax system. Second, the United States already has highly redistributive economic policies.

Consider the tax numbers. Despite the complaints that somehow billionaires are going untaxed, the federal income tax is substantially progressive.

In tax year 2022, for example, 48% of all federal income tax revenues came from the top 1% of earners, who paid an average tax rate of 26%. The top 10% of earners paid 72% of revenues, while the bottom 50% accounted for just 3% of revenues.

It’s true, of course, that the Social Security payroll tax, which zeroes out above a certain income level, is not so progressive. It’s also true that while some states have high-income tax rates, others have no state income tax at all, and almost all states rely heavily on less progressive sales taxes. But that leaves the United States with a more redistributive system overall than European nations—much praised by leftists—which, in fact, rely heavily on taxing consumers through value-added taxes.

The government could perhaps gain more revenue by increasing the top rate from the 37% set in 2017 to Harris’ proposed 39.6%. That’s a number cleverly set by former President Bill Clinton’s administration, presumably because 39.6% sounds not nearly as close to half as 40% does.

At some point when you raise tax rates, especially when states like California and New York pile 10% rates on top of them, the animal spirits of high earners will be diverted from productive activity to tax avoidance, and revenues will start falling. Economic redistribution stops working when the government has less revenue to redistribute.

The second problem for politicians seeking to redistribute money to low earners is that the United States government does a lot of that already, more than either Democratic or Republican politicians seem comfortable in admitting.

Documenting the numbers are former Sen. Phil Gramm, former Texas A&M economist Robert Ekelund, and retired Bureau of Labor Statistics professional John Early in their 2022 book “The Myth of American Inequality: How Government Biases Policy Debate.” The authors show how government statistics, scrupulously compiled but defined in ways that made sense decades ago, now significantly understate the incomes of low-income earners.

As they point out, Census Bureau income statistics don’t take into account government transfer payments—food stamps, Medicare, Medicaid, the earned income tax credit, and child tax credits. These are substantial enough that, when you take account of transfers and taxes, the lowest three quintiles (fifths) of the income scale end up with similar take-home pay, between (rounded off) $50,000 and $66,000.

That’s not a sumptuous standard of living, but it’s not a starvation level either. The days I remember from my childhood in Detroit when factory workers cashed their paychecks and handed the bills and change to their wives and lived in fear of layoffs are gone. These days, low-earning Americans live on credit and debit cards and qualify, as millions did after the 2007-2008 recession, for EBT food stamps and disability payments.

About everyone would like a 13th month of income. However, the lack of visible protest at the lapsing of the COVID-19 era of refundable child tax credit or the courts’ blocking President Joe Biden’s student loan forgiveness suggests that most Americans figure they can get by.

Similarly, the unpopularity of Obamacare during the Obama presidency and the unpopularity of Obamacare repeal when Republicans took over suggests Americans are more leery of changes in health care arrangements than seething with discontent at them.

This is not a population with a downtrodden proletariat demanding fundamental change and massive economic redistribution. It looks more like a population living with, and sometimes griping about, government tax and benefits systems that redistribute vast shares of a mostly growing economy.

Republicans have learned that voters will tolerate only marginal reductions in redistributions and, with their new modest-income core constituency, have no incentive to seek more.

Democrats are having trouble facing the fact that modest-income voters concerned about their woke stance on cultural issues have no more appetite than their affluent new core constituency for vastly increased economic redistribution—even if they could design one that wouldn’t send the whole system crashing down.

Michael Barone is a senior political analyst for the Washington Examiner, resident fellow at the American Enterprise Institute and longtime co-author of The Almanac of American Politics.

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