Why is $1 Trillion in Redistribution Not Enough?

October 22, 2008

In an essay in today's Wall Street Journal titled "Obama and the Tax Tipping Point," economist Adam Lerrick wonders "what happens when the voter in the exact middle of the earnings spectrum receives in benefits from Washington than he pays in taxes?"

Lerrick suggests that Obama's "gift-wrapped packets of money in the form of refundable tax credits" will push the balance past the tipping point where the majority of Americans will receive more in government benefits than they pay in taxes.

Lerrick is right to be worried, but a 2007 Tax Foundation report showed that America is already past the tipping point. Economists Gerald Prante and Andrew Chamberlain showed that governments at all levels are redistributing more than $1 trillion from the top 40 percent of households to the bottom 60 percent.

As the chart below shows, the typical low income person received $8.21 for every dollar they paid in taxes while the typical upper income household received .41 cents for every dollar of taxes paid. More remarkably, the study showed that households in the "forgotten" middle-income group received $1.30 in spending for every dollar they paid in taxes. http://www.taxfoundation.org/legacy/show/2286.html

Clearly, Obama's tax and spending plans will make the overall federal system more "progressive" or pro-poor. His tax plan alone would redistribute more than $140 billion per year from the top 1 percent of taxpayers to everyone else.

Obama did come clean on this issue when he said recently that he would "spread the wealth around," but the facts show that government tax and spending policy is already designed to redistribute vast sums of wealth from upper-income households to low-income households.

The question for Obama is "why is $1 trillion in redistribution not enough?"

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