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The Democrats have concluded not just a massive restructuring of the health economy. They also made a push in what is likely to be an extended effort to spread the wealth even more than it currently is.
Conservatives cry that President Barack Obama is pushing policy in a radical new direction, while triumphant liberals crow that the era of Ronald Reagan is over.
Don’t buy the hyperbole. The U.S. government already spreads the wealth around with abandon. Obama’s efforts are just a continuation and magnification of that lamentable practice.
Look at the health bill. In its use of taxpayer dollars to subsidize insurance for those with lower incomes, it follows many other government policies that steer government spending toward the poor.
In a study published in 2007, the Tax Foundation examined the tax burdens and government spending receipts across income groups. It found that for every dollar it sent to Washington, the lowest quintile of the income distribution received $14.76 in government spending. By comparison, the highest quintile–at that time, those making more than $99,500–received just 32 cents for every dollar paid in federal taxes.
Similarly on the revenue side, the health initiative is paid for mostly by the rich.
One of the primary sources is an increase in the Medicare payroll tax. Starting in 2013, the 3.8 percent Medicare tax will be applied to unearned income–including capital gains, dividends, interest and rent–for the 1 million individual filers making more than $200,000 and the 4 million couples making at least $250,000. In addition, these same taxpayers will pay an extra 0.9 percent of their wage income to Medicare.
The health-care bill’s tax burden can be truly stunning at high incomes. According to the Tax Policy Center, those with incomes between $235,000 and $623,000 can expect to pay an extra $1,110 per year on average. For those with incomes above $623,000, the average amount is $25,474. For those with incomes above $2.8 million, the number is $153,204.
Again, that isn’t a radical break from current practice. The fact is, federal taxes are already massively redistributive.
Relying on data from the Tax Policy Center, I looked at how the current system differs from a hypothetical one in which taxes you pay are in proportion to the income you make. My calculations indicate that under current law about 52 percent of the revenue from federal taxes comes from redistributive taxation–that is, tax rates and policies that don’t apply uniformly to all taxpayers. Under Obama’s proposed 2011 budget, this number increases to about 55 percent. And much of the health-care redistribution doesn’t show up until later.
The federal income tax is only a part of the overall picture. At the state and local levels, sales and property taxes, which are applied more uniformly, lessen the redistributive impact of government policy.
To gain a complete picture, I analyzed tax payments made by typical families to government at all levels in the U.S., using the Bureau of Labor Statistics’ Consumer Expenditure Survey. I compared the total tax burden–including sales, excise, federal and state income, payroll and property taxes–for a typical family earning $50,000, and a typical family earning $150,000, in 1983 and 2003.
The family earning $50,000 paid 29 percent of income in 1983 and 31 percent in 2003. The family earning 150,000 paid 30 percent of income both years.
This suggests the redistribution of wealth through taxes is far less dramatic than it appears through the narrow lens of the federal income tax code. Even the federal numbers, on their own, don’t scream that a redistributive revolution is at hand. If 55 percent of taxes being used for redistribution is socialist, then 52 percent is too. If 52 percent is acceptable, then 55 percent is, at worst, almost acceptable.
Obama’s opponents probably would like to scare voters with assertions that he is dramatically changing the distribution of taxes. Obama’s supporters also want to characterize the changes as dramatic, so they can make the case that he is a transformative president. That’s why the false narrative has so much steam.
My own view is that Obama is pushing us in the wrong direction and has too little regard for the principle that people who earn a dollar have a morally valid claim to keep it. But I must concede that even if he succeeds at accomplishing everything in his budget, he won’t reshape the fiscal universe radically.
Kevin A. Hassett is a senior fellow and director of economic policy studies at AEI.
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