Political Hay

Redistribution Justification

Raising present taxes in order to penalize past benefits smacks of retroactivity.

By 3.23.10

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The Left's favorite mantra justifying income redistribution is "excessive benefit from Bush policies." The liberal illogic goes that "the wealthy" have been receiving too much and paying too little and should now make it up with higher taxes. The flaws in this slanted reasoning are many. The danger in it is even greater.

For those who missed it, let's recount what "the wealthy's excessive benefit" was. For one thing, they got to pay a top federal tax rate of 35 percent. That means the federal government got to take over a third of everything they earned. In reality, it means "the wealthy" got to keep well less than 65 cents of every dollar they made, once state and local taxes are added to the federal tax rate.

This "too-low" top rate means that "the wealthy" paid taxes at the same federal rate as corporations. Of course, as many correctly argue, the corporate tax rate is too high to be globally competitive. The fear is that businesses and investment will migrate abroad. For some reason, the same concern does not exist for top individual producers. 

If the wealthy's gains are ill-gotten, then wouldn't justice be better and more quickly served to prosecute, rather than persecute, them? There rightly was no hesitation with Bernie Madoff. Seeking to tax the wealthy to justice is the least efficient manner for redressing the Left's claimed wrong. Unless, of course, you presume that all the wealthy's gains are ill-gotten…

Top earners' real "crime" is success. What do they do with their excessive benefits? Invest, save, and start businesses. All of which employ others and give customers goods at the lowest possible prices. Criminal.

Who are these insanely wealthy souls? A married couple making over $374,000 this year would qualify for the top tax rate. It is impossible to put a face on them though -- because their ranks change every year. As people age, they migrate through the tax rates -- the "wealthy" one year, were likely "poor" earlier, and will likely return to lower tax rates again as they reach retirement.

This income migration points out the dangerous but implicit element of the Left's redistribution justification. Raising present taxes in order to penalize past benefits smacks of retroactivity. As income migration shows, it is a very imprecise imposition -- people who had lower tax rates in the past may no longer be in the top income group next year, and people in the top income group next year, may not have been in the top over the previous decade. No matter to the Left. 

The retroactive nature of the Left's justification should indeed be a concern to the rest of us though. It is more dangerous than the taxes themselves. It not only offers an unlimited rationale for raising future taxes, but leaves neither amount nor type of income immune from its rearward reach.

By all competent projections, Washington is on an unsustainable spending path. Generated by entitlements and inertia, there is no effort on the Left to avoid excessive spending. Its demand will therefore turn for more and more revenue. The two largest pots will be in baby-boomer savings and middle class earnings. If someone's past success can justify a reach-back revenue-grab, what makes retirement accounts safe? If someone can be deemed to have benefitted "excessively," why does anyone have comfort that today's middle class do not become tomorrow's wealthy?

We can never rest secure in liberals' limits because there is no limit for liberals. The Left thinks in non-economic terms and acts under anti-economic rules. Under its system, there are no market forces to align supply to demand. Therefore there are no means to enforce boundaries on actions. There are only the Left's own good intent and the inherent belief that it can order society better than society and markets can order themselves. 

Thus liberals can not tell us how much "the wealthy" need pay in taxes. Already those in the top tax bracket pay almost 35 percent of all federal income taxes paid in the U.S. This despite the fact that they make up less than four percent of federal taxpayers. How much more a burden should they shoulder? The Left cannot be more precise than to simply say "more."

The Left should say what it means. If it believes America is under-taxed -- in whole or in part -- it should say so. If it believes that Washington must have more revenue because spending cannot be cut -- it should make the claim. Of course, it will say neither, because America would reject both assertions.

For this reason, the Left rarely says what they mean. But the Left does mean what it says. And often far more. The problem is America just does not listen. 

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About the Author

J.T. Young served in the Department of Treasury and the Office of Management and Budget from 2001 to 2004 and as a Congressional staff member from 1987 to 2000.