Big Government Drives Income Inequality

[FaninAma]

Really it is a no-brainer that this is true.

http://online.wsj.com/news/articles/SB10001424052702303848104579312422581164580

Who eventually ends up with all the money spent by the government? I don't thing there are too many EBT card users who have big bank accounts.

Meanwhile the theft from future generations continues.


OPINIONHow Big Government Drives Inequality
Stifling economic growth and benefiting insiders with Washington access do not help the middle class.

By DAVID MALPASS
Jan. 15, 2014 7:11 p.m. ET
Inequality is the wedge issue that Democrats hope will carry them through the 2014 and 2016 elections, neutralizing the ObamaCare fiasco. The issue has popular appeal because median incomes (after inflation) have been falling throughout the recovery, while high-end incomes are increasing rapidly.


For progressives, this situation seems made to order: If you want a flatter income distribution, don't you need bigger government to get it? Yet experience shows the opposite: Washington's increased size and power has concentrated income and wealth in fewer hands. Making government bigger will exacerbate this problem—it is already too big, intrusive and expensive to allow a robust economy that benefits everyone.


President Ronald Reagan rejected class warfare, advocating sound money and lower tax rates to boost growth and living standards. His policies worked. The economy grew faster than 7% in real terms for five quarters in a row starting in the second quarter of 1983. Gross domestic product grew on average 4.6% per year in real terms during the 1983-88 expansion, while real median incomes grew 2.1%. His policies were such an economic success that appeals to class warfare gained relatively little political traction for 25 years.


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Since the Reagan years, growth policies have faded while the government has increased its control over the economy and national income. Top marginal federal income-tax rates have risen to nearly 44% today from 28% in 1988. The dollar has weakened while consumer prices have doubled in 25 years. Federal nondefense spending has nearly quadrupled to $2.8 trillion in 2013 from $750 billion in 1988, adding a huge burden on taxpayers as national debt grows.


Today, almost five years after the recession officially ended in June 2009, job growth from new business formation is running one-third below average, according to the Labor Department's Employment Dynamics report. Real GDP growth has averaged a weak 2.3% over the past three years, while real median incomes have fallen 0.6% per year. This disastrous economic result sets up a political confrontation between those who believe that a bigger government makes things better and those who believe that it concentrates power and income in fewer hands, undercutting the middle class.


Progressives may concede the weakness of the economic recovery. Yet they urge more government spending and higher taxes, claiming that their policies will achieve higher growth and a fairer distribution of income.


Conservatives need to champion economic growth as Reagan did, but they also need to make a more forceful connection between the government's centralization of power and income inequality.


Big government expansions in recent years have harmed individuals with modest incomes while exempting or benefiting people with higher incomes. These include the federal takeover of the mortgage industry, and the Federal Reserve's decisions to keep interest rates near zero and buy some $3 trillion in bonds. Both of these expansions channel credit to the government and the well-connected at the expense of savers and new businesses.


Middle-income earners used to be the primary beneficiary of the rise in the value of their houses. Housing gains now lift Washington, allowing the government to pay itself huge "dividends" from Fannie Mae, FNMA +2.36% Freddie Mac FMCC +3.50% and the Federal Reserve, which owns nearly $1.5 trillion in the government's housing-related bonds. The government promptly spends the windfalls, fueling a further accumulation of wealth and income for those with Washington access.


The financial industry is making billions in profits fueled by the government's provision of zero-rate loans for those with connections and collateral. Wall Street's upper crust is the epicenter for financing the contractors, lobbyists and lawyers that help the government spend money. Meanwhile, government grabs a huge share of the profits generated by small businesses. It piles on opaque regulations, complex tax rules and countless independent agencies, producing a system that works against small businesses and the middle class. The Affordable Care Act takes pains to exempt Congress, government, corporations and unions, but leaves the rest severely exposed, adding to inequality.


This week's congressional budget deal saw a narrow group of Washington's elite legislators and lobbyists working over the weekend to divvy up nearly $1.1 trillion in discretionary spending for 2014. Much of the spending and all of the lobbying and debt underwriting costs will benefit those with high incomes while the extra debt falls heavily on the middle class.


There is nothing wrong with an appropriate level of government services—it's necessary. But we are long past that level. Growing the government shrinks the rest of the economy and after-tax paychecks.


The next debt limit increase is approaching fast, probably in March. Fiscal conservatives are likely to argue along traditional lines for a few spending cuts or some votes to highlight the ObamaCare calamity. That leaves Democrats with the inequality argument to use as a bludgeon against Republicans.


The debt-limit debate should be a national referendum on the size of the federal government and the need for new controls on its growth and power. That will be a critical step in restoring income growth, but as currently written, the debt-limit law forces votes in favor of more debt.


I've advocated strengthening the debt limit by adding a declining debt-to-GDP ceiling that, when exceeded, triggers extra controls on spending and a hair shirt for Washington. Extra debt should trigger a slowdown in automatic entitlement growth, pay cuts for senior officials and reductions in their subsidized benefits until they resolve the spending crisis.


A new debt law offering spending restraint would boost confidence among investors and entrepreneurs. Most important, it would allow median incomes to begin rising again once Washington leaves private enterprise more room to breathe and grow.


Mr. Malpass is president of Encima Global LLC. He served as deputy assistant Treasury secretary in the Reagan administration and deputy assistant secretary of state in the George H.W. Bush administration.

[KantoSooner]

Or how about we adopt a flat tax and tax all dividend and cap gains as straight forward income?

Seems like we could fix the rate at something like 15-18% and be done with it. We'd also have the societal benefits of not having to listen to about 40% of the political squawking we currently have and all the tax preparers and CPA's and tax attorneys could move on to productive careers. Most of the financial planners as well.

[SoonerBBall]

Or how about we adopt a flat tax and tax all dividend and cap gains as straight forward income?

Seems like we could fix the rate at something like 15-18% and be done with it. We'd also have the societal benefits of not having to listen to about 40% of the political squawking we currently have and all the tax preparers and CPA's and tax attorneys could move on to productive careers. Most of the financial planners as well.

Or we could just scrap all the BS taxes and collect a federal sales tax on all new goods since consumption spending is far more predictable than income at all levels. It has the added bonus of completely obviating the IRS.

EDIT: To whit:

http://www.fairtax.org/images/content/pagebuilder/11763.gif
AGI = Adjusted Gross Income
PCE = Personal Consumption Expenditures

[FaninAma]

Or how about we adopt a flat tax and tax all dividend and cap gains as straight forward income?

Seems like we could fix the rate at something like 15-18% and be done with it. We'd also have the societal benefits of not having to listen to about 40% of the political squawking we currently have and all the tax preparers and CPA's and tax attorneys could move on to productive careers. Most of the financial planners as well.
Giving up control over the tax code means giving up the ability to reward supporters and punish opponents. Giving up control of the tax code means giving up power. Neither politicql party will do it.

[KantoSooner]

Appealing....
and the lefties get to be happy that wealthy people would pay more on their minks, yachts and caviar (excepting of course what they buy overseas...or then we'd have to go back to the tedium of having the customs men pawing through your suitcase and questioning, if your mom packed your bag, whether those shirts didn't look suspiciously new...)

And the wealthy could chuckle up their sleeves watching poor children unable to afford the tax on gruel and thus trundling off to the work house once more, bellies whining in pain.

Something for everyone!

Somehow, I'm thinking that people get around a heavy enough sales tax. Not sure exactly what form it would take, but I'm thinking.

[jkjsooner]

Or we could just scrap all the BS taxes and collect a federal sales tax on all new goods since consumption spending is far more predictable than income at all levels. It has the added bonus of completely obviating the IRS.

EDIT: To whit:

http://www.fairtax.org/images/content/pagebuilder/11763.gif
AGI = Adjusted Gross Income
PCE = Personal Consumption Expenditures

There are two big problems. First is that a sales tax would discourage spending. I'd be more inclined to not spend any more than what is necessary - or I would if I were single and had a choice in such matters. That would be harmful for the economy.

The other one is that the poor spend all of their income by necessity. The rich only spend a fraction of their income. This is just setting up the rich to amass more and more money. Power to them but we don't need to set up a system that makes it even easier for them to amass a larger percentage of wealth.

The only way this could be a starter is to have exclusions on necessary items.

[jkjsooner]

To add to the previous post, let's say you're looking at buying a modest $300,000 house. Let's say a 20% tax rate. You think it's not going to be disruptive to add an additional $60,000 tax on the sale of the house? Given we'll have more money from the lack of income tax but that would probably be offset by more normal purchases. In either case, such a radical change would be very disruptive creating winners and losers which is a common criticism of govt actions.

Then you have to ask how in the world could we make such a transition. Do I get off scott free on my retirement savings or are they going to keep income taxes around for deferred tax situations? And what about the savings that have already been subject to income taxes? Now I have to pay sales tax to use that money?

The rich might not like that last part although in the long run this change would benefit them.

[TAFBSooner]

Re: replacing the income tax with a consumption (sales) tax:


. . .the poor spend all of their income by necessity. The rich only spend a fraction of their income. This is just setting up the rich to amass more and more money. Power to them but we don't need to set up a system that makes it even easier for them to amass a larger percentage of wealth.


This is exactly why the establishment is floating the idea.

[cvsooner]

Big government drives income inequality.

Thus soup kitchens caused the Great Depression.

Both statements are wrong.

[Turd_Ferguson]

Big government drives income inequality.

Thus soup kitchens caused the Great Depression.

Both statements are wrong.

Yes, this makes total ****ing sense.

[FaninAma]

Big government drives income inequality.

Thus soup kitchens caused the Great Depression.

Both statements are wrong.

Care to expound on your opinion or do we just accept it as credible because you posted it?

if your opinion is that income inequality drives big government then why hasn't expansion of the government leviathan decreased income inequality. Exactly the opposite has happened.

[SoonerBBall]

There are two big problems. First is that a sales tax would discourage spending. I'd be more inclined to not spend any more than what is necessary - or I would if I were single and had a choice in such matters. That would be harmful for the economy.

The other one is that the poor spend all of their income by necessity. The rich only spend a fraction of their income. This is just setting up the rich to amass more and more money. Power to them but we don't need to set up a system that makes it even easier for them to amass a larger percentage of wealth.

The only way this could be a starter is to have exclusions on necessary items.

No exclusions necessary. Under the proposed legislation, every household would be reimbursed by the government for the total amount of the tax up to the poverty level. It is called a prebate and is paid out at the beginning of the month in 12 equal installments. That means nobody is taxed up to the poverty level and helps encourage savings.

I think the idea that Americans would magically start saving money in droves if their paychecks increased substantially is ludicrous. We are the most consumptive culture in the history of the world.

Also, the rich already amass huge portions of their wealth. This would allow everybody a better opportunity to save if they so choose. Also, without having to worry about the taxation, most of the rich would likely start investing more aggressively (in more than just stocks) which is exactly what the economy needs.

[SoonerBBall]

To add to the previous post, let's say you're looking at buying a modest $300,000 house. Let's say a 20% tax rate. You think it's not going to be disruptive to add an additional $60,000 tax on the sale of the house? Given we'll have more money from the lack of income tax but that would probably be offset by more normal purchases. In either case, such a radical change would be very disruptive creating winners and losers which is a common criticism of govt actions.

Then you have to ask how in the world could we make such a transition. Do I get off scott free on my retirement savings or are they going to keep income taxes around for deferred tax situations? And what about the savings that have already been subject to income taxes? Now I have to pay sales tax to use that money?

The rich might not like that last part although in the long run this change would benefit them.

You're really caught up about it benefiting the rich. The current tax codes already benefit the rich to an extreme degree and at the expense of the middle and lower class. The Fair Tax legislation is certainly not perfect, but it benefits the middle and lower class to a far greater degree than the current tax code. It is also a better way to collect taxes despite its flaws and, most importantly, removes the completely un-American (and maybe even unconstitutional) income tax.

[yermom]

oh, so you only want to tax the people above the poverty line?

communist.

[Turd_Ferguson]

oh, so you only want to tax the people above the poverty line?

communist.

oh, so you only want to take money from the people that work and give it to those that won't?

yermom.

[cvsooner]

Care to expound on your opinion or do we just accept it as credible because you posted it?

if your opinion is that income inequality drives big government then why hasn't expansion of the government leviathan decreased income inequality. Exactly the opposite has happened.

Income inequality did drive the need to create more effective government, which happened to be larger, and it greatly decreased income inequality when the top tax rates were 91 percent (which almost nobody paid, what with credits and deductions). And it worked quite well in doing so.

And then the large government was taken over by the wealthy and a stooge named Ronald Reagan, which increased the size of government and rigged the rules yet again to reinstate income inequality. So now we have the worst of all possible worlds--a large government determined to keep income unequal.

The last thing the wealthy want is to reduce the size of government. They just want to control AND they don't want to pay for it. Investing money into elections has worked quite well, so as long as they control key people in key posts, things will be like this.

[cvsooner]

oh, so you only want to take money from the people that work and give it to those that won't?

yermom.

So which one of these is Robin Hood? Steal from the rich to give to the poor since the rich stole it from the poor in the first place...

[FaninAma]

Cvs, so why haven't the Democrats corrected the evil things Reagan put in place? They have had control of the Presidency and both houses of Congress under both Clinton and Obama.

You basically said the same thing the author did......as government grows and spends greater and greater amounts of the nation's resources the more likely it is that wealthy powerful entities will find ways to control the process and benefit from the spending.

[cvsooner]

Yes, but I come at it from a different track: inequality drives the need for bigger government as individuals won't or don't fill the need of the citizenry for necessary services in means to an end.

You do realize Reagan actually expanded government, don't you? As did George W. Bush? Clinton and Obama have both actually presided over smaller governments.

And saying they had control over both Houses of Congress is disingenuous. Barely...especially with the cloture rules in effect, requiring a 60-vote majority in the Senate for practically anything, and the practice that all a Senator had to do is to threaten to filibuster to stop legislation dead in the process.

Also, the Democrats haven't corrected it because they're as obligated to big money interests as the GOP, and today's government is basically a military that also operates a large insurance company. Plus, today's Democrat isn't nearly as progressive as they used to be--and don't get me started on the infamous Blue Dog Democrats.

Finally, neither Clinton nor Obama is all that progressive either. Heck, Obama is a fairly moderate Republican, about on par with Gerald Ford, say. Would only that he were truly progressive.

[FaninAma]

Yes, but I come at it from a different track: inequality drives the need for bigger government as individuals won't or don't fill the need of the citizenry for necessary services in means to an end.

You do realize Reagan actually expanded government, don't you? As did George W. Bush? Clinton and Obama have both actually presided over smaller governments.

And saying they had control over both Houses of Congress is disingenuous. Barely...especially with the cloture rules in effect, requiring a 60-vote majority in the Senate for practically anything, and the practice that all a Senator had to do is to threaten to filibuster to stop legislation dead in the process.

Also, the Democrats haven't corrected it because they're as obligated to big money interests as the GOP, and today's government is basically a military that also operates a large insurance company. Plus, today's Democrat isn't nearly as progressive as they used to be--and don't get me started on the infamous Blue Dog Democrats.

Finally, neither Clinton nor Obama is all that progressive either. Heck, Obama is a fairly moderate Republican, about on par with Gerald Ford, say. Would only that he were truly progressive.

By what criteria did Obama preside over a smaller government? I'm not even sure Clinton reduced the size of the government. I just think he slightly reduced the rate of growth.

So, it appears that you think we simply haven't grown the government large enough or gotten the right politicians elected that know how to redistribute the resources the government takes from elsewhere more appropriately.

I am fairly certain that redistribution is not the way you narrow the income gap. The government wil ALWAYS be co-opted by those with wealth and power. The resources the government obtains will always be redistributed from the middle class and future generations to the wealthy. You are naive to think otherwise. That is why the only way to solve the problem is cut the size of government which is exactly what the TEA Party advocates. Why do you think they are hated by both the Democrats and establishment Republicans?

And the demand for more entitlements plays right into their plans to keep growing the government even larger.

[cvsooner]

Redistribution is a great way to narrow the income gap in a mature economy such as ours. It worked really well from 1933 to 1973. In that case it went from the wealthiest into the hands of the middle class and the poor. Cutting the size of government is a real popular idea until it actually happens. Then it's not such a good idea. Government is not the problem, and its size is not the problem: running it dishonestly is the problem.

The TEA Party is mostly a bunch of saps, who are being played, in my opinion...a convenient front for those who aren't interested in governing unless they run it all.

[Turd_Ferguson]

Redistribution is a great way to narrow the income gap in a mature economy such as ours. It worked really well from 1933 to 1973. In that case it went from the wealthiest into the hands of the middle class and the poor. Cutting the size of government is a real popular idea until it actually happens. Then it's not such a good idea. Government is not the problem, and its size is not the problem: running it dishonestly is the problem.

The TEA Party is mostly a bunch of saps, who are being played, in my opinion...a convenient front for those who aren't interested in governing unless they run it all.

Seams as though you have it all figured out...

[FaninAma]

Redistribution is a great way to narrow the income gap in a mature economy such as ours. It worked really well from 1933 to 1973. In that case it went from the wealthiest into the hands of the middle class and the poor. Cutting the size of government is a real popular idea until it actually happens. Then it's not such a good idea. Government is not the problem, and its size is not the problem: running it dishonestly is the problem.

The TEA Party is mostly a bunch of saps, who are being played, in my opinion...a convenient front for those who aren't interested in governing unless they run it all.

Please explain how there was great redistribution of wealth in this country from 1933 until 1973? The percentage of government spending as a percentage of GDP is actually higher now than it was during that period(excluding the cost of WWII). Also, the size of government was much, much, much smaller during that period.

Finally, can you name one country or society in which a large central government and a high level of wealth redistribution have been successful over a long period of time? Socialism and all of it various derivatives have been recent political developments. The USSR and communism were the purest attempts to enforce income equality. That system of government lasted what.....70 years? The Chinese have lived under communist rule for about 70 years although many would say they are more capatilistic than we are at this moment. The big cradle to grave social programs in Europe have all been around for less than 100 years and already they are starting to collapse under their own weight.

What other great success stories of big government enforcing income redistrubution can you share with us?

Maybe Kanto can enter the discussion and throw you a life line.

[REDREX]

Redistribution is a great way to narrow the income gap in a mature economy such as ours. It worked really well from 1933 to 1973. In that case it went from the wealthiest into the hands of the middle class and the poor. Cutting the size of government is a real popular idea until it actually happens. Then it's not such a good idea. Government is not the problem, and its size is not the problem: running it dishonestly is the problem.

The TEA Party is mostly a bunch of saps, who are being played, in my opinion...a convenient front for those who aren't interested in governing unless they run it all.--- Why is it the Gov'ts job to narrow the income gap?----Why would anyone think this way?

[FaninAma]

--- Why is it the Gov'ts job to narrow the income gap?----Why would anyone think this way?
Because for those who support big government entitlement programs it is the easiest way to make things fair in their minds. They trust a huge faceless, inefficient, uncaring entity more than they do individual humans and private organizations.

Afterall don't you recall all of the mass starvation tragedies that occurred in this country before Uncle Sam became everybody's sugar daddy? Eh, me neither.

[yermom]

--- Why is it the Gov'ts job to narrow the income gap?----Why would anyone think this way?

i've still yet to hear a shining example of the opposite in the current world

the income gap is the government's problem if they want to continue to exist. you can only expect to fleece the common citizen so long before they do something. there are lots of examples of that.

[RUSH LIMBAUGH is my clone!]

Please explain how there was great redistribution of wealth in this country from 1933 until 1973? The percentage of government spending as a percentage of GDP is actually higher now than it was during that period(excluding the cost of WWII). Also, the size of government was much, much, much smaller during that period.

Finally, can you name one country or society in which large government and a high level of wealth distribution has been successful over a long period of time? Socialism and all of it various corralaries have been recent political developments. The USSR and communism were the purest attempts to inforce income equality. That system of government lasted what.....70 years? The Chnese have lived under communist rule for about 70 years although many would say they are more capatilistic than we are at this moment. The big craddle to grave social programs in Europe have all been around for less than 100 years and already they are starting to collapse under their own weight.

What other great success stories of big government enforcing income redistrubution can you share with us?

Maybe Kanto can enter the discussion and throw you a life line.we are lousy with socialists in the USA nowadays, and it costs us BIGTIME

[REDREX]

i've still yet to hear a shining example of the opposite in the current world

the income gap is the government's problem if they want to continue to exist. you can only expect to fleece the common citizen so long before they do something. there are lots of examples of that.-----
I pay income tax at the top rate----I am the one being fleeced------------Quit bitching take a little personal responsibility and don't expect the Gov't to solve your problems

[yermom]

Pardon me while I weep for your situation

Woe is you

[REDREX]

Pardon me while I weep for your situation

Woe is you------I am fine---I don't sit around and complain about the world not being "Fair"
-----

[yermom]

Where was I whining?

[okie52]

Redistribution is a great way to narrow the income gap in a mature economy such as ours. It worked really well from 1933 to 1973. In that case it went from the wealthiest into the hands of the middle class and the poor. Cutting the size of government is a real popular idea until it actually happens. Then it's not such a good idea. Government is not the problem, and its size is not the problem: running it dishonestly is the problem.

The TEA Party is mostly a bunch of saps, who are being played, in my opinion...a convenient front for those who aren't interested in governing unless they run it all.


Big fan of those 90% tax brackets, eh!

[okie52]

i've still yet to hear a shining example of the opposite in the current world

the income gap is the government's problem if they want to continue to exist. you can only expect to fleece the common citizen so long before they do something. there are lots of examples of that.

Fleecing the common man...do you laugh when you say that?

[yermom]

CEOs are making more than ever before, and profits are at record levels

yet minimum wage hasn't kept up with inflation

i'm talking about people that actually have jobs not some nebulous welfare queen boogie man eating steak and lobster every night

[okie52]

So what if CEOs are making more money? I realize this causes great revulsion to some that believe your money is their money or that a person giving 2 days work out of every 5 to the government is somehow "short changing" society.

But it's the minimum wage worker that pays no fed income tax that is getting fleeced...

The sense of entitlement of some simply astounds me...

[REDREX]

I think it is funny to think you can hire an employee for min wage that you expect to keep or that you can give any responsibility to

[okie52]

Been a long time since I've paid someone minimum wage...

Of course if they couldn't speak English and didn't have any skills I might be overpaying them.

[Ton Loc]

Minimum wage was meant for high school, college kids and part time jobs. It wasn't meant to raise a family on or even yourself.

Big or small government - doesn't matter the size if it is run by people who are more interested in money and their own personal welfare more than the people they represent.

Also - old people - start smoking and drinking. Actually, if you're in your 40s - put down the jogging shoes and pick up a beer and a cigarette. We need you to kick off 10-15 years earlier. Those last years were going to suck anyway.

[yermom]

minimum wage is just an example. wages in general are pretty stagnant, especially compared with inflation.

[okiewaker]

Why is it the Gov'ts job to narrow the income gap?----Why would anyone think this way?

It's not, but it has been woven into our thinking.

[OU68]

Minimum wage was meant for high school, college kids and part time jobs. It wasn't meant to raise a family on or even yourself.

Big or small government - doesn't matter the size if it is run by people who are more interested in money and their own personal welfare more than the people they represent.

Also - old people - start smoking and drinking. Actually, if you're in your 40s - put down the jogging shoes and pick up a beer and a cigarette. We need you to kick off 10-15 years earlier. Those last years were going to suck anyway.

Not a jogger - just took up cigars, does that count? Oh, and I prefer wine, that OK? :hopelessness:

[Ton Loc]

Not a jogger - just took up cigars, does that count? Oh, and I prefer wine, that OK? :hopelessness:

Perfect