An argument against the governments use of taxes and public spending to redistribute income

The table below displays the effective tax rate defined as total federal taxes paid — including payroll taxes to fund Social Security and Medicare — divided by total income earned for different segments of the income distribution.

Under this approach, all anti-poverty benefits would take the form of cash. Hoover Dam built in the s with government funds This is a summary of whether should the government intervene in the economy. Seeking more value for their dollars, business managers and owners decide instead to spend their money on capital investments or higher-skilled workers.

Government intervention can regulate monopolies and promote competition. Implicit government guarantees of mortgages — through purchases by Fannie Mae and Freddie Mac, as well as other policies — encourage lenders to extend loans to riskier and riskier borrowers.

Should the government intervene in the economy?

There could be a case in which an individual market agent makes a poor investment decision, and the invested capital is consumed without further wealth production. Anti-poverty spending should therefore involve one simple and explicitly redistributionist program: Whether some degree of government is necessary to allow the market to operate, while being outside the scope of this essay, deserves commentary.

First, there are direct anti-poverty programs, like Temporary Assistance to Needy Families what we commonly think of as welfarefood stamps, Medicaid, and the Earned Income Tax Credit. That some goods may not be applied toward the attainment of a specific end does not mean that these resources are now idle and valueless.

On the other side of the ledger, the taxation required to pay for anti-poverty programs discourages effort and savings by those who pay for the transfers.

Almost all of our means of redistribution today lack convincing philosophical or empirical justification.

The Distribution of Tax and Spending Policies in the United States

By taxing production which causes pollution costs and using the subsidy to encourage other forms of energy production, there is a net gain in social welfare. It is no longer a question of some straightforward relationship between investment and wealth creation.

Another early form of wealth redistribution occurred in Plymouth Colony under the leadership of William Bradford. Union protections, for instance, artificially raise the cost of skilled labor; limits on drug prices discourage research and development on new procedures and medicines; farm subsidies reduce agricultural production and increase food prices; trade protections distort the decisions of domestic producers and consumers; and mortgage subsidies lead to over-investment in housing and, as we have learned all too painfully in recent years, can result in dangerous bubbles.

The role of prices in aiding individuals in making their decisions when economizing means is effectively nullified, because, to the government, prices are almost irrelevant. And state experimentation would no doubt produce some innovations and improvements that a federal system would fail to discover.

Upon further inspection, there are convincing reasons to believe that government spending is actually a discoordinating force, and that as a result such spending is not an effective countercyclical policy.

Two other common types of governmental redistribution of income are subsidies and vouchers such as food stamps. We need to get back to basics, and ask what a straightforward and economically rational approach to alleviating poverty would look like.

Even so, the negative income tax might still introduce less distortion and inefficiency than our existing array of anti-poverty programs, because these programs often incorporate much higher implicit tax rates on income.

First, the administrative costs of running one simple program would be far lower than the costs of running many complicated programs.

At the same time, vouchers pose little risk of serious misuse: But no one can deny that the burden of taxation today is highly uneven across income groups, and that our tax system is therefore highly redistributive especially since roughly half of federal revenues are used to pay for anti-poverty programs that provide additional support to low earners.

Some people will decide that their highest priority is a good school for their children; others will decide they need to spend money on transportation to a job; still others will spend their money on medical care, and so on. Even a minimalist negative income tax would have some distorting effects.

Redistribution of income and wealth

Moreover, much of the redistribution goes to middle-class families, so the poor are not really provided with a middle-class income. Government Policies to Reduce Income Inequality Chapter Issues in Labor Markets: Unions, Discrimination, Immigration Government Policies to Reduce Income Inequality Explain the arguments for and against government intervention in a market economy; Identify beneficial ways to reduce the economic inequality in a society.

An Argument against the Government's Use of Taxes and Public Spending to Redistribute Income. Start studying macro midterm 2. Learn vocabulary, terms, and more with flashcards, games, and other study tools.

Rethinking Redistribution

Which of the following is NOT an argument AGAINST the use of expansionary fiscal policy? government spending or taxes to close a recessionary or inflationary gap. the use of government spending and taxes to manage aggregate demand; can be pulled in different directions by short-run and long-run concerns changes in the federal budget changes in government spending or taxation; can have large effects on US economy bc government in US plays a relatively smaller role in the economy.

By and large, those means take three forms. First, there are direct anti-poverty programs, like Temporary Assistance to Needy Families (what we commonly think of as welfare), food stamps, Medicaid, and the Earned Income Tax Credit.

The first common argument for anti-poverty spending is that the alleviation of poverty is what economists call a "public good" — something everyone would like to see provided, but which few people provide voluntarily because they hope others will do it for them.

or the need to insure against low income — do not apply when it comes to.

Rethinking Redistribution An argument against the governments use of taxes and public spending to redistribute income
Rated 4/5 based on 86 review
Rethinking Redistribution | National Affairs