The Moral Implications of
Redistributive Economic Policies
Ethics LS 707
Team Members: Allison Pyle, Lou Maynus,
Sonya White and Leatha Williams
Key Terminology
• Market Economy - An economy that operates by
voluntary exchange in a free market and is not planned
or controlled by a central authority; a capitalistic
economy.
• Mix-market Economy- A mixed economy is an
economy that includes a variety of private and
government control; reflecting characteristics of both
capitalism and socialism.
– The United States is a mixed marketed economy, because of
substantial market regulation, agricultural subsidies,
extensive government-funded research and development,
Medicare/Medicaid.
Present Status of the United States as an
Economic System
• The United States is a mixed marketed
economy, because of:
• substantial market regulation,
• agricultural subsidies,
• extensive government-funded
• research and development and
• Medicare/Medicaid.
Source:
Gordon, D. (n.d.). Justice and redistributive taxation: james buchanan versus lugwig
von mises. Retrieved from https://mises.org/journals/rae/pdf/rae8_1_5.pdf
Key Terminology- Policies of a Mixed
Market Economy
• Policy – this is a statement of what the government
tend to do or not to do, enforce or not enforce in
regards to laws, decisions or orders or any
combination of the three (examples of policies are
constitutional, statutory and regulatory)
$ 3 major types of policies:
$ Distributive – these policies primarily benefit a small group and is
considered a political process because of logrolling and pork-barrel
spending that is associated with it.
$ Regulatory – governs the conduct of business and market to protect
the welfare and interest of the population.
$ Redistributive – the transference of resources in terms of wealth,
property, various rights or other valued items from one group in the
population to another group (i.e. social classes and racial groups).
Source: Lending, B. (2001). Four systems of policy, politics and choice by theodore j. lowi. Retrieved from
http://filebox.vt.edu/b/blending/vap-lowi-bl.htm
Philosophical Underpinning of the United
States Mixed Market Approach
• Anglo-Saxon Model
– Developed in the 1970s… out of Chicago School of Economics
• Chicago School of Economic Thought:
– Postwar – development
– Root in John Maynard Keynes
• Macroeconomics are rooted in Keynesian thoughts
• Microeconomics are rooted in neoclassical thoughts
• Major characteristics:
– Low rates of taxation, open financial markets, low labor market
protection and collective bargaining
• Neoclassical Thoughts: Adam Smith, David Hume
and John Stuart Mills
– Free Trade: Laissez-faire
– Labor vs. Mercantilism
Source:
Richter, E. (2004). Rhine capitalism, anglo-saxon capitalism and redistribution. Retrieved from
https://publish.indymedia.org.uk/uk/servlet/OpenMir?do=getpdf&id=299588&forIE=.pdf
Key Understandings: Present Status of Policies
$ The United States government imposes taxes at all
levels of government in order to finance spending
programs intended to benefit citizens.
$ The questions for this project regarding fiscal policies
are:
$ What is the cost verses the benefits of these fiscal policies?
$ How are the cost and benefits of these fiscal policies
distributed across social classes, age groups and racial classes?
$ How much do people pay in taxes verses how much is spent
on them by the government?
Source:
Prante, G. and Hodge, S. (2013). The distribution of tax and spending policies in the united states. Retrieved from
http://taxfoundation.org/article/distribution-tax-and-spending-policies-united-states
Present Status of Fiscal Policies
Distribution vs. Redistribution
2012: Collected $4.2 Trillion, Spent $5.5 Trillion for a Deficit of $1.3 Trillion
The chart is illustrating fiscal policy by income cohort and government levels
Source:
Prante, G. and Hodge, S. (2013). The distribution of tax and spending policies in the united states. Retrieved from
http://taxfoundation.org/article/distribution-tax-and-spending-policies-united-states
Spending Ratios by Income Cohort
Pre/post-Redistribution
Status of Government Redistribution
Major Theorists
What do they say about redistribution of wealth?
John Rawls
Adam Smith
Immanuel Kant
Ayn Rand
Friedrich Nietzsche
John Rawls' Method
(Stanford, 2008)
Original Position
Veil of Ignorance
Choosing principles that will govern the world
All generations have the same rights to resources, future as
well as present.
Building a Better America
One Wealth Quintile at a Time
Harvard Business School
Study – followed Rawls
Surveyed to answer two
questions –
•Is there consensus
among Americans?
•Preferences of “regular
Americans”
John Rawls, 1971
Adam Smith
Capitalism’s Founding Father
“The great object of the political economy of every country is to
increase the riches and power of that country.”
Smith also argued that capital for the production and distribution of
wealth could work most effectively in the absence of government
interference.
Such a laissez-faire—that is, “leave alone” or “allow to be”—policy
(a term popularized by Wealth of Nations) would, in his opinion,
encourage the most efficient operation of private and commercial
enterprises.
He was not against government involvement in public projects too
large for private investment, but rather objected to its meddling in
the market mechanism.
Immanuel Kant
Kant would say redistribution is immoral
because the maxim on which it is based could
not be universally applied without running
into the law of non-contradiction.
The welfare state is immoral also because it
allows the recipient to make demands on the
taxpayer with out providing the taxpayer with
an equivalent value. Redistribution is
immoral, more generally, because it allows
one person to treat another as a means to the
first person’s ends.
Ayn Rand: Queen of the Universe
Rand believed that a government that taxed billionaires
to help pay for healthcare and education for
impoverished children was not just unwise economically,
it was also immoral.
Ayn Rand considered government and democracy –
systems of mob rule.
Thursday, 07 February 2013
By The Daily Take, The Thom Hartmann Program
Ayn Rand continued…
They don’t want the 21st Century to be “America’s
Century.” They want it to be the “Billionaire’s
Century.” And if they succeed, then the middle class in
America - and through most of the developed world will go extinct
Friedrich Nietzsche
(Moral Philosophy, 2009)
• All creation is motivated by “will to power”
• We seek to flourish and dominate as an element of
survival
• Hampered by Christianity which causes “slave
morality”.
• …we will see that the whole edifice of slave morality
must crumble and with it the notion of equal worth.
Redistributive Policies
• Redistributive Policies:
The government taxes one group of people to provide
benefits to another group
• Types of Redistributive Policies:
Income stabilization (Unemployment/Retirement),
Welfare (Head Start, TANF, Food Stamps, School
lunch programs), Health Care (Medicare/Medicaid),
Housing (Fair housing, FHA, Section 8), Income
distribution (Tax Code)
http://cbapp.csudh.edu/depts/adjunct/ehuntington/pub304/chapt_4_public_policy.htm
Redistribution through taxation
o Progressive taxation (increasing equality)personal income taxes, property taxes
o Regressive taxation (indirect)- taxes on
services/goods and international trade
o Corporate taxation
Taxes should not distort incentives to work,
invest, and create work.
Prasad, (2008)
Taxation
o Income, profits, and capital gains: based
on the net income of individuals, profits of
corporations and enterprises, and capital gains
on land, securities, and other assets
o Goods and Services: sales tax, taxes on
services or the use of goods or property
o International trade: import/export duties,
profits of import/export monopolies, exchange
profits/taxes
Prasad, (2008)
Redistribution through social transfers
o Contributory-contributions made by
beneficiaries (and their employers) determine
entitlement to benefits
o Non-contributory-require no direct
contribution from beneficiaries or their
employers as a condition of entitlement to
receive benefits; usually financed through taxes
or other state revenues.
http://www.ilo.org/gimi/gess/ShowTheme.do?tid=11
Types of Social Transfers
o Social assistance benefits
o provide cash benefits to those less advantaged usually based
on some form of means-test. They may also provide or
facilitate access to benefits in kind, such as access to health
care and other social services
o Social insurance
o grant access to health care and other social services or pay
periodic cash benefits throughout the specific time period.(ex.
old age, unemployment, employment injury, maternity,
sickness, etc.)
Conditional Cash Transfers (CCTs)
What is it?
The main idea is to provide cash to poor families on
certain conditions that are linked to education, health,
and nutrition.
Pros of CCTs:
Directly reaches poorest families, improves human
capital, reduces poverty and income inequality, and
breaks the inter-generational poverty cycle.
CCT criticism:
Exclusive focus on poor households, contrary to
universal and egalitarian systems
Redistribution through social expenditures
o Education
o Health Care
o Social Services
o
o
o
o
Medical Care
Unemployment
Retirement/ Survivor Pensions
Social Security
Prasad, (2008)
Redistribution and Poverty
Sharing and Redistribution
• 2 examples of how this does not work
• Pilgrims at Plymouth, Massachusetts
– Community Garden – no one took responsibility they almost
starved
– Productivity improved when every family was responsible for
their own garden
• Chinese Government’s failure
– Farmers were given land and told what to grow. Crop
production was minimal and of poor quality
– Farmers were given a choice of what to grow and were
allowed to keep a proportion of the profits from the crops.
Increased output from the farms and additional income for the
families.
Taxes – The foundation for redistribution
• Tax increases usually have a negative effect on the
economy
– Less money for consumers to spend, invest and decreases
revenue
• Inflation eventually brings income up to the point that
the middle class are hit by taxes originally meant for
“the rich”
– Tax laws do not include adjustments for inflation
• Taxing the rich shifts money from the private sector to
the government
– People can invest and spend their money efficiently
– The government spends the money based on lobbying by
special interests or wastes the money in bureaucracies
Taxes – The foundation for redistribution
• By taxation, the government has little motive to reduce
spending or control waste
• Increasing the tax rates on the rich may make them
leave the country or move their assets elsewhere thus
reducing the tax revenue and tax base
• Creates animosity between the classes by blaming rich
for excesses and the poor for being lazy
• Increased taxes means smaller profits and revenue to
start new businesses
• Efficiently run private charities receive less money with
more funds going to bureaucracy that waste money and
a much smaller percentage makes it to the people in
need
Milton Friedman’s Thoughts on
Redistribution
• Friedman proposed the replacement of the existing
U.S. welfare system with a negative income tax
– This gives the poor a basic living wage above what they earn
• Friedman also argued that most government programs
benefited the middle class and not the rich or poor
– Higher Education
– Social Security
Poverty Rate and Spending On Poverty
Share of Federal Taxes by Quintile
Quintiles and Mean Income
•
•
•
•
•
•
Lower Quintile $11,239
Second Quintile $29,204
Third Quintile $49,842
Fourth Quintile $80,080
Upper Quintile $178,020
Top 5% $318,052
Range $0 - $20,262
Range $20,263 - $38,520
Range $38,521 - $62,434
Range $62,435 - $101,582
Range $101,583 - ??
A Plan for Change
Things that Redistribution can change
•
•
•
•
Healthcare
Retirement
Empowerment of Workers
Public Infrastructure
– Roads
– Schools
• Pathways out of Poverty
– Public Education
– Universal Healthcare
– Adequate Housing
• Work and Family
Pathways out of Poverty
• Public Education
– According to the United Nations education of poor children
and especially females has the potential to reduce poverty by
12%
– Economically disadvantaged children need approximately 40
– 100 percent more funding per child
• In the United States $1,307 less is spent on the education of
each economically disadvantaged child
– 591 Billion will be spent for public education this year
• Over $11,000 per child – this amount includes all aspects of the
school system – facilities, transportation, materials and
personnel this amount includes federal, state and local spending
Pathways out of Poverty
• Public Education
– Increasing the funding for economically disadvantaged
children (Approximately 23 Million) by $1,500 each would
cost 34.5 billion dollars annually. (a 6% increase in funding)
– If this additional funding were used fore the sole purpose of
hiring teachers, 345,000 new teachers could be added to the
teaching force (Assuming $100,000 per year for salary and
benefits)
– This would be a 10% increase in the teaching force.
– For a school with approximately 350 elementary students in
WV, this would mean an addition of two teachers to the ranks
and reduce the average class size from 22 to 19.
Pathways out of Poverty
• Healthcare
– Provide basic healthcare for children with site based clinics in
schools
– Provide low cost healthcare for adults
– Provide health and wellness education to parents of children
in poverty
– Reduce the bureaucracy needed to run these programs to keep
costs down
Pathways out of Poverty
• Adequate Housing
– Characteristics
•
•
•
•
Running water
Bathrooms
Safe heating and cooling systems
Free of harmful materials (lead, asbestos etc.)
Redistribution schemes to pay for
these objectives
• Eliminate bureaucratic waste by direct funding to
school districts from the federal and state governments.
Per pupil amounts sent to districts based on
enrollment.
• Remove the cap on Social Security taxes to provide
additional revenue for social security to keep it solvent
and free up money for other projects.
– This however would compound the problem later since the no
cap measure would also mean that these higher paid workers
would collect higher benefits when they retire
–
• Eliminate many of the tax breaks for the wealthy. These
in essence are a redistribution to the wealthy –(give
examples from the article in the notes section.
Taxation solutions
Indirect taxes (regressive)- poor tend to spend higher
proportion of income on goods and services than do
the rich.
Make indirect taxes more progressive by:
• Targeting taxation on goods and services consumed
at different rates by the rich and the poor.
• Lower or eliminate the Value Added Tax on
products which make up a large proportion of the
poor household’s consumption, such as food, while
increasing taxes on products generally consumed by
the rich, such as luxury goods.
Taxation solutions
The US tax system is becoming less progressive as
marginal income tax rates have decreased from 91%
in the 1960s to 35% in 2003.
Payroll taxes funding social security have increased
from 6% to 15% with a cap at $90,000 meaning people
above this income level enjoy lower tax rates.
To return to a more progressive system, the US could
increase funding for social expenditures by removing
the income cap requiring those above the $90,000 cap
to pay taxes based on their full income.
References
Behrendt, C. & Hagemeyer, K. (2012). Global Extension of Social
Security. Retrieved from
http://www.ilo.org/gimi/gess/ShowTheme.do?tid=11
Economic Policy Institute, (2010). Agenda for Shared
Prosperity. Retrieved from
http://www.sharedprosperity.org/
Norton, M. & Ariely, D. (2011). Building a Better America –
One Wealth Quintile at a Time.
Retrieved from
http://www.people.hbs.edu/mnorton/norton
%20ariely%20in%20press.pdf
Pojman, L. & Tramel, P. (2009). Moral Philosophy,
Friedrich
Nietzshe: Beyond Good and Evil.
Prasad, N. (2008). Policies for redistribution: The use of taxes and
social transfers. Geneva, Switzerland: International Institute
Welch, W. (2013). Adam Smith: Capitalism’s
Founding Father. Retrieved from
http://www.vision.org/visionmedia/biogra
adam-smith/868.aspx
phy-
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