21 April 2015

Skepticism About Redistribution

From the NYT:
With rising income inequality in the United States, you might expect more and more people to conclude that it’s time to soak the rich. Here’s a puzzle, though: Over the last several decades, close to the opposite has happened. 
Since the 1970s, middle-class incomes have been stagnant in inflation-adjusted terms, while the wealthy have done very well; inequality of wealth and income has risen. 
Over that same period, though, Americans’ views on whether the government should work to redistribute income — to tax the rich, for example, and funnel the proceeds to the poor and working class — have, depending on which survey answers you look at, either been little changed, or shifted toward greater skepticism about redistribution. 
In other words, Americans’ desire to soak the rich has diminished even as the rich have more wealth available that could, theoretically, be soaked.
I suspect that the decreased desire of average Americans to soak the rich among can be traced to at least two issues.  First, most people have an intuitive understanding that there are limits to how much the rich can be soaked before they just up and leave.  Second, promises of soaking the rich, particularly in the name of reducing inequality often has the strange effect of soaking the middle class.

Regarding the former, most people who know or work with or for rich people (e.g. accountants) know that the rich can afford to manipulate a system to their advantage, whether by lobbying/bribery or more commonly by hiring people to manipulate the system for them, which is why tax lawyers make pretty good money.  More to the point, tax exile has been used by plenty of people who could not or did not structure their income so as to avoid paying income taxes.  Thus, it’s pretty clear that vilifying the rich, though an enjoyable pastime, doesn’t really accomplish much, save for occasionally getting rich people to make their money in country where it isn’t taxed as much, making everyone else more equal while having reduced access to ta funds.

Regarding the latter, vilifying the rich in order to push for greater fairness and equality has more or less led to the modern IRS tax code, among a host of other things.  The complexity of the tax code makes it patently unfair and necessarily increases inequality because it requires the need for specialists to help the ignorant and less-intelligent navigate and manipulate the system.  This isn’t as big a deal when for rich people (the relative costs are low and the upside is high), but it is a big deal for those who are not rich because not all can afford to hire an expert and may lack the intelligence or know-how to navigate the system to their benefit.  Since vilifying the rich to justify greater equality tends to be a smokescreen for increased systemic complexity, most people are wise to be distrustful of talk of “soaking the rich” since often turns out to be the rich soaking the peons.

There are, of course, other reasons why people aren’t as inclined to soak the rich.  Aspirational affiliation is likely among them.  Also, humans have a tendency to feel sympathetic towards the rich, partly out of the human tendency to revere high-status individuals.  Nonetheless, there is good reason to distrust talk of redistribution.  That reason is deceit.

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