The New York Times
By: Eduardo Porter
September 25, 2012
Mitt Romney may be right about President Obama's Robin Hood tendencies. Future historians could well conclude that Mr. Obama led the biggest redistribution of wealth in decades.
The Affordable Care Act, which levies new taxes on the wealthy to expand access to health care for the near poor, seems on track to become the biggest increase in government redistribution since the Johnson administration.
According to the Tax Foundation, it will raise $52,000 in new taxes on average from families in the richest 1 percent of the population, to pay for some $250 to $2,000 in benefits on average for American families in the bottom half of income by 2016.
The Obama fiscal stimulus also did much to assist the most vulnerable Americans. It expanded the food stamp program and the earned-income tax credit. It extended unemployment insurance and sent $800 checks to poor and middle-class families. Over all, the Congressional Budget Office found that total government taxes and transfers reduced the nation's income inequality by more than a quarter in 2009, the most in at least 30 years.
As Mr. Romney outlines on the campaign trail, his administration would veer sharply from this strategy. He would repeal health care reform and not only make permanent the tax cuts on high earners passed by President George W. Bush, but also reduce tax rates further.
This would require deep cuts in government spending. And the nonpartisan Tax Policy Center has predicted that for Mr. Romney to fulfill his promises, he would have to raise taxes on the middle class and the poor.
"Redistribution" has recently taken center stage in the presidential campaign, presented as a choice between Mr. Obama's demand that millionaires pay a higher tax rate than their secretaries do and Mr. Romney's impatience with moochers waiting for a government handout. Yet the discourse overstates the difference between what an Obama administration and a Romney administration would do to reduce the income gap.
A Republican administration would most likely choose fewer taxes and less spending than a Democratic one. Still, demographics alone suggest that regardless of who is the next president, and the one after that, the government is going to wind up distributing more of the nation's wealth than it does today.
The debate about income inequality has grown louder as the nation's income gap has widened over the last three decades. But it is hardly new.
When Mr. Romney criticized Mr. Obama for wanting to redistribute income, he was channeling Ronald Reagan, who quipped back in 1964: we "can't see a fat man standing beside a thin one without coming to the conclusion that the fat man got that way by taking advantage of the thin one."
Yet, in fact, governments throughout our history -- Republican and Democratic -- have used taxes and transfers to subsidize the poor with money from the better off. At the end of the administration of George W. Bush in 2008, taxes and government spending trimmed the Gini index -- a common measure of inequality that ranges from 0 when everybody has the same to 1 when a single person hogs everything -- to 0.444, from 0.579, according to the Congressional Budget Office.
Redistribution by government doesn't always fit our expectations. President Reagan was indeed set against a broad redistribution of wealth. By the time he left office, the federal government was doing far less to close the gap on income inequality than when he arrived.
Since then, however, there have been some surprising turns. President Bill Clinton, for instance, redistributed less than his predecessor, George H. W. Bush. When Mr. Clinton took the reins of government in 1993, taxes and transfers reduced the Gini index measure of inequality by 23 percent, according to the budget office. When he left office in 2000, income inequality was much greater than when he started. Yet government closed the gap by only 21 percent.
Even George W. Bush did more. He slashed taxes on the rich and tried to privatize Social Security. But by the end of his administration, taxes and government spending closed the income gap by 23 percent.
Administrations face constraints, of course. An attempt to compromise with Congressional Republicans led President Obama to extend his predecessor's tax cuts, rather than repeal them as he had proposed, sending less money from the rich to the poor than he had promised.
Despite his distaste for redistribution, Mr. Romney has staunchly defended at least a part of it: opposing some $700 billion worth of cuts to the Medicare program.
Beyond political limitations, the amount of redistribution by government is shaped largely by outside factors: in the short term, the economic cycle, and in the long term, demographic change.
The amount of money that the government moves from the rich to the poor will jump almost automatically in a recession because of rising unemployment payments.
Unemployment insurance accounts for much of the growth in government transfers that made such a big dent in income inequality in the first year of the Obama administration.
But there are long-term forces that will help determine how much wealth the government redistributes in the future. One is globalization. It increases demands for a bigger social safety net to protect workers from the uncertainty of a hypercompetitive open world economy, but also reduces the government's ability to raise the money to finance it.
Some economists worry that globalization makes it too difficult to raise money to redistribute. Corporate taxes, for instance, have dropped sharply as a source of revenue since the 1950s as corporate tax rates have been trimmed and companies have adopted more sophisticated financial tools to reduce their liability. As capital becomes easier to move across borders, corporate income may become even more difficult to tax.
The other powerful driver is demographic change. Specifically, we are getting older.
As the population ages, government spending on health care is expected to mushroom.
The Congressional Budget Office estimates that spending on Social Security, Medicare and Medicaid is on track to consume 16.5 percent of our national economic output by 2037, nine percentage points more than the average since the 1970s. This means the government will need to raise much more money. And though government spending on health also benefits the middle class and the rich, the money will flow mostly to the poor.
Take it from Alan Viard, an economist at the conservative American Enterprise Institute who worked in the administration of George W. Bush. Mr. Viard is no spendthrift. He advocates trimming benefits -- requiring that high-income Americans pick up more of the tab for their own health care. But he acknowledges that meeting our demographic challenge will require more spending, too.
The American public will not really accept the kind of drastic cuts in benefits that would be needed to solve the entitlement crisis.
The additional money won't all come from the rich, of course. The "middle class," defined by the president as families earning less than $250,000, will need to chip in, too, to pay for the larger government in our future. Yet the result is almost certainly much more redistribution of wealth than we have today. Mr. Viard puts it well: "It seems that a larger share of our economic resources will be redistributed." That's regardless of who occupies the White House.