Hows That Income Redistribution Workingout For You?

In spite of the fact that Obama and the liberals are forever talking about redistributing the wealth, they are really talking about redistributing income. This redistribution process is supposedly brought about by our progressive system of taxes. Whether or not you are in favor of income redistribution, you/we don’t have a choice, do we? My question to you taxpayers is are you willingly or unwillingly getting your money’s worth from big brother’s government’s efforts to take from those that produce and give to those who don’t or can’t produce? Any thinking taxpayer; i.e., conservative taxpayer, intuitively knows that the answer is no.

Everyone is probably aware that in this recession ( I don’t care what the government and the economist say, we are still in a recession.) about 50% of the people pay no Federal income tax. In non-recession times that figure is more like 35 or 40 percent. That doesn’t seem “fair” but that’s the way it is. But, nobody escapes paying state and local taxes. According to this article, the average American pays a whooping 57.7% percent of their income in taxes, some of which are hidden taxes.

But, the question was how is the redistribution workingout? Let’s think of one group of programs that we collectively call welfare.  It’s been reported in various news outlets that in this non-recession recession, there are now 44 million people receiving welfare payments. That’s a lot of people who are benefiting from the redistribution process. Apart from whether or not welfare is a good idea from a sociological stand point, I’m more interested today in who is really benefiting from our tax dollars that are being used for welfare.

Because I’ve been unable to find any useful data, let’s do some back-of-the-evelope analysis. If we assume very conservatively that the average welfare recipient receives $10,000 per year, that amounts to $440 billion per year. A lot of money by any standard. Yet, at $10,000 per year, these folks are not exactly living the high life. But let’s not stop here. What the taxpayer should want to know is how much of a tax dollar actually ends up in the hands of the people we are trying to help.   To continue with my SWAG analysis, I assume that for every dollar our governments take from their tax revenue pool to apply to the various welfare programs, forty cents is consumed by federal bureaucracy and twenty cents are consumed by state and local bureaucracy. If these assumptions are in the right ball park, it would mean that welfare bureaucracy is costing the taxpayers $1.1 trillion for a grand total of $1.54 trillion per year.

Now let’s think about that $1.1 trillion for bureaucrats. Let’s assume that the average bureaucrat costs $80,000 dollars per year in salary, benefits, consumables and, office maintenance. that would be 14 million bureaucrats if my math is correct. 

  So, our governments would have you believe that in the interest of income redistribution to help the most needy, you are required to contribute part of you tax obligations for this purpose. What they don’t want you to know is that besides helping 44 million people to live on crumbs, you are also paying for 14 million bureaucrats to live on a comfortable salary with great retirement and health benefits while you are struggling to make ends meet. Isn’t that nice. And we have only talked about one of thousands of government programs. Imagine how many bureaucrats you working to support in manner you would like to become accustomed to.

The bigger that governments get the worse it is for those that have to pay for it. folks, it is time for the taxpayers to revolt.

Well, that’s what I’m thinking. What are your thoughts?

42 thoughts on “Hows That Income Redistribution Workingout For You?

  1. I think you are exactly right as always. The government gives exactly enough money that it isn’t profitable for them to go off the dole. If they did they risk losing the healthcare for them if they have it, for their children because it is required in every state now, plus then they have to have transportation and in places like where I live that means a car! You count in the money they would have to pay on gas, insurance, upkeep and insurance, plus in most cases insurance and you can see how they don’t have an incentive to leave welfare. I know people who live this way and it is not just laziness, it is a real fear, especially when jobs are scare and companies are hiring so many illegals or those with green cards. If they get a job, and then lose it for whatever reason, it is very hard to get by with children until the government aid kicks back in. It’s easier and more secure to just go with what you know instead of risking everything. Plus they help you with finding a place to live and paying your rent. For families with young children the ability to stay home for the mother is an equal incentive. Paying for daycare and leaving their children is much harder. The numbers are hard to figure but the security on those families is easy to understand and it is a hard cycle to break!

    1. Whether it by intention or the result of unintended consequences, these programs have destroyed the dignity of the people they hare supposedly helping. Instead of incentivize them to make the life changes they need to make, we reward them for staying nonproductive. Talk about crime against humanity. Sigh!

  2. One thing to note as well. The more the government pushes for higher corporate taxes, the worse it will get for the average American, as those higher taxes will sift down to the consumer to be paid. That would be you and me, I think.

  3. Its probably more correct to describe us as having a ‘sluggish economy’ rather than being in recession. We haven’t met the definition of recession since Q3 of 2009. That is not to say the economy is good. It isn’t. Its still very, very bad… just ask the unemployed!

    We DO have a wealth gap problem and that is what’s keeping the economy from recovering.

    The middle class and the economy at large are being squeezed from two sides by a growing wealth gap concentrated in two places:
    1-The government
    2-The top 2% of wage earners

    Those two groups suck up around 50% of the GDP. That doesn’t leave enough in the rest of the economy for job creation and economy building consumerism.

    Not to mention that wealth is draining out of this country like a leaky bucket of water.

    About 24% of the GDP went to the top 1% of wage earners just before the Great Recession hit. What is spooky is that is EXACTLY the situation we had just before the Great Depression of the 1930s!

    These rich wage earners have so much money that they can’t spend it all. They make lousy consumers. They can’t buy enough in goods and services to do their part for recovering the economy. You can only buy so many mansions and Mercedes. And the super rich have a tendency to be enticed into bad investments since they can afford the losses.

    The government… wellll… it just plain mismanages the great wealth given it by taxpayers. Government CAN’T create jobs and build an economy. Only the private sector can do that. At best, government can tweak an economy to keep it running smoothly.

    Government always drains a country’s economy and ours is way, way over the optimum amount of GDP that economists think governments can safely take without hurting their nation. It is about 24% of GDP right now and, according to economists, around 18.6% is optimum.

    We DO have a wealth gap. Wealth is concentrated to much in government and the upper 2% of wage earners.

    Unless we have a course correction our economy will not recover and our burdensome national debt will eventually sink the nation in an ocean of red ink.

    Virtually everything big government is doing right now to fix the economy is wrong.

    Anyone here have any brilliant ideas what we can do better to fix the wealth gap problem that will, in turn, fix the economy?

    1. My question is how the upper 2% is getting so much of the wealth. To think that giving more of that wealth to the inefficient and wasteful government to redistribute is ridiculous. I never understand why even people who think income should be redistributed want it to go through the government, of all black holes for wealth.

      The thing that keeps nagging at me is that so many of the uber-wealthy get their wealth without really producing anything of value. I have absolutely zero problem with someone who starts a business (think Microsoft, Apple, Home Depot, etc.) becoming super-rich. The number of jobs those people create, and the value they bring makes their reward of vast wealth completely earned. Those who help finance new businesses… those investment bankers in the “where the rubber meets the road” end of the business where they’re facilitating wealth creation earn their money too, mostly through willingness to risk. But there’s a third class of super-rich (a class in which, oddly enough, the George Soros’ of the world belong) where their huge transactions are sort of movement of paper that doesn’t build wealth for anyone but them… no new jobs or products or services are created by their financial wizardry.

      I don’t know the answer for what to do about them, but I agree with you that their wealth is not particularly productive… though their political influence doubtlessly is. This issue was one of the things that attracted me to Larry Kotlikoff’s “Limited Purpose Banking” concept. It seemed that Kotlikoff’s plan begins to put limits on what unproductive wealth could do to increase by requiring, basically, wealth to be productive in some way.

      I’m still trying to wrap my head around it. Part of me simply wants to celebrate anyone’s ability to accumulate wealth. Good for them! Another part of me has a nagging suspicion that at some level the game is rigged in favor of those whose wealth increases without consequent increase of general wealth production (again, distinguishing the extraordinarily successful entrepreneurs from this group), and that, furthermore, the Democrats’ “tax the rich” mantra is a smokescreen that will somehow continue to protect this class of uber-rich while harming the very middle class and productive rich they don’t acknowledge as being different from the uber-rich/unproductive… Dodd-Frank seemed to indicate that the smokescreen is real.

      1. I can’t tell you why the upper 2% is getting so much wealth, I can only report the facts. Facts are facts and they won’t change if we deny them.

        You are right, of course. Giving the government our hard earned tax dollars to fix the wealth gap problem is the stupidest move there is. Politicians are drawn to it, though, because it increases their influence and power.

        You are also correct that many get wealthy through speculative investments without producing anything.That is a major element negatively affecting our economy today.

        That is another spooky similarity to 1929 that we share. Speculative investing is almost pandemic and it helped bring on the home mortgage collapse and the Great Recession.

        Where we differ from 1929 is that we do have better checks and balances against economic disaster. That helps.

        Despite what most folks think, the much hated TARP loan program is what prevented a modern day Depression. Nothing else. The turnaround from the downward spiral is clearly shown in timeline with our nation’s economic indicators as the loans went out and spent.

        There is no other logical explanation. The tide had turned months before Obama’s “Stimulus” money got out the door.

        So what then to do?

    2. I acknowledge the widening wage gap; but, I see it as a effect of government fiscal and monetary policies. Because of these policies the economic pie is not growing as it should and when the economic pie is not growing, it is always the lower income people that suffer the most.

      1. Government fiscal policy is DIRECTLY responsible for the government’s piece of the wealth gap pie. A simple glance at budget and national debt growth figures since the year 2000 proves that.

        What facts lead you to believe that government policy is responsible for the top 2% of wage earner’s share of the wealth gap pie?

      2. Government’s fiscal and monetary policies are responsible for this on going recession The fact that technically we are no longer in recession doesn’t impress me or the people that are still suffering one bit. With the bulk of QE II helping only Wall Street, the top 2% folks are still able to grow their income.

      3. You may be incorrect about QEII.

        I think QEI funded purchases of mortgage-backed securities insured by the government. That one probably benefited the very rich.

        The $600 billion of QEII that just ran out at the end of Q2 this year was used to monetize the government’s own ginormous deficits, not to provide capital for Wall Street investments.

        Those $600 billion in bonds were sold to pay for our growing national debt.

        That’s even worse than giving it to the upper 2% of wage earners as loans! 🙂

    3. “rich wage earners have so much money that they can’t spend it all. They make lousy consumers. They can’t buy enough in goods and services to do their part for recovering the economy. You can only buy so many mansions and Mercedes. And the super rich have a tendency to be enticed into bad investments since they can afford the losses.”

      This is a common fallacy associated with the income distribution argument. According to your analysis (as I quoted), rich people are removing capital (in the form of money) from the economy? They can’t do their part for recovering the money, because they can’t spend all of it – this is the crux of your statement.

      Let me ask you a simple question – Where is all this money that they aren’t spending? Are they all Scrooge McDucks, with gigantic 10-story tall vaults in their mansions, where they go every day to swim in all the cash they are hoarding? Or…is it in a bank? If its in a bank, then they are doing more than most people to “recover the economy”.

      Banks use that money to loan to people, like, oh I don’t know, entrepreneurs who seek to start a new business. The fact that banks aren’t lending is a direct result of FED monetary policy, not because rich folks are stowing their billions in some gigantic mattress in their Malibu Barbie Dreamhouse.

      As far as bad investments go…a bad investment is neither a plus nor a negative for the economy, its just a bad investment. If you invest venture capital in a company that fails, its not like that money is thrown in a barrel and set on fire. That money was used to pay wages, buy physical capital, purchase inventory and many other things – just because the investment was “bad” doesn’t mean those things didn’t happen.

      1. That is true, about the money going into banks. Unless it’s under the mattress or in the McScrooge Vault (a term I intend to copyright right out from under you when I design and install multi-level huge home vaults) it is available in banks. The other question when they compute the top 2% and the wealth they own is how much is paper assets, versus cash that can be deposited in banks? The “on paper” assets tend to rise and fall.

        That said, it still seems to me that there are productive rich and unproductive rich. My example of the unproductive rich (which makes me laugh inside) is the late Ted Kennedy. I’m guessing the Kennedy wealth grew over that last half century, but has a Kennedy ever produced anything (other than bombast and free market crushing legislation)? I honestly don’t know, but I’d suspect that given their interests, and the fact that they’ve hidden so many assets off-shore, the answer is no. Which, by the way, brings up another thing regarding the “money in the bank works within the economy” aspect… What happens when the money is hidden offshore? An especially laughable thing when it’s done by Democrats who love to raise everyone else’s taxes while sheltering their own.

        You know what’s going on in MN right now with Gov. Dayton forcing a state government shutdown because the Republicans in the state House and Senate would not give him his tax hike on the wealthiest Minnesotans (yet they did give him a budget increase of 6%)? I personally know a very wealthy Minnesotan who is a huge supporter of Governor Dayton, who gives generously to the Liberal cause fighting on Dayton’s behalf. This person is a lifelong Minnesotan–who now officially resides in (wait for it….) MEXICO! No longer subject to the taxes that would be raised on others in MN. As for Dayton… A trust fund baby who has never held a job in the private sector in his life. (By the way, I have no problem with that in terms of his parents having created a large and successful business and giving money to their kids. I do have a problem with those kids not understanding what their parents–or grandparents–did to create all of that wealth and suddenly believing it grows on trees for everyone and, therefore, since they themselves didn’t do anything to earn it, nobody must do anything to earn their wealth so punishing the wealthy is only right because the rest of the rich people are as guilty as Dayton feels he is.)

      2. Fleeceme asks, “Where is all this money that they aren’t spending?”
        (the “they” being the top 2% of wage earners)

        Answer: It’s in their pocketbooks.

        A Concrete Example:
        According to Forbes the top 25 hedge fund managers made $22.07 billion in 2010.

        That is pushing almost $1 billion in earnings each for just 25 individual wage earners in one year.

        Nobody, and I mean nobody, could spend that much money in one year.

        The super rich simply have to much personal disposable income to spend. That’s just a fact.

        Thus, the super rich are lousy consumers. When they can’t spend their income their earnings are held outside the economy and not being used to create jobs and drive a thriving economy.

        The super rich account for about 24% of the entire GDP! That means that almost 25% of all economic activity in the US last year ISN’T getting plowed back into the economy.

        That is one reason the economy is so weak. (Government spending and uncertainty are others)

        That, folks, is is part of the problem!

    1. Those are very revealing and sobering statistics.

      The really sad part is in the liberal mindset they really believe that they are helping.

  4. I’ve been working on and off on a piece about the morality of the redistribution of wealth. It should be published fairly soon. I’m glad you covered the nuts and bolts of it in this fine piece.

  5. Progressive taxation is Marxist, not American. I’m for the straight Flat Tax, at least until such time as someone can present me with some compelling arguments to the contrary. After all, 10% is 10%, whether it’s applied to me or Donald Trump…can’t get much fairer than that.

    1. I agree, Bob, that a flat tax would be more fair for federal taxes. But we need to also think about Stat and local income taxes, sale taxes, property taxes and all the hidden taxes like gasoline tax and corporate taxes and regulatory compliance cost that all get passed on to the consumer.

    2. This is strange for me to say, especially since I’ve always hated and opposed sales taxes all my life… but…

      a “Fair Tax” – taxing consumption rather than income – may be an even better idea.

      It would only work effectively, of course, if income taxes were abandoned all together.

      And the good news is April 15th would become just another day on the calendar again. 🙂

    3. I’m with you, Bob. Seems to me the flat tax is the only legitimate way to equally distribute tax responsibility and create the best framework for each citizen’s vested interest in our nation. This follows the equal protection laws of the Constitution at least. Also, no estate taxes. Earned income would be taxed once and that would be that. Land holdings are already subjected to state and local property taxes and should not be taxed by the feds.

      As for redistribution …as long as we have quid pro quo arrangements by politicians, legislation for sale to the highest bidders, I don’t know how we can stop them from abusing the system. GE is the poster child of Obama’s legacy. If that were the only one…but there are thousands and thousands in varying degrees. Corrupt politicians just get away with it…because our media doesn’t do its job exposing it to the public and congress has lost its moral compass. Add to that the foreign aid, the UN, and we are frogs boiling in the proverbial pot.

      Good post, Jim. In short, redistribution never works out except for the inside players. To me, the tea party is all about figuring out how to starve the beast. You can’t tame it…you have to starve it. No more funding corporate welfare, any welfare, QE’s, or lifting debt ceilings, or federal borrowing. Just talking feds here. The states and locals will have to be dealt with individually through their own populations and structures. Some of that is working..albeit slowly. So, to your question, Jim…do you have an actual mass tax revolt? Or do you hope against hope again that our elected officials will do the job.?? Is it a slow weaning process? Or is it a free for all in the streets? Looks to me the public is trying the slow process through the elections. The hole is so deep that it will take a long time with this method. Guess we’ll see.

      1. Thanks, Cheryl. The only elected officials we can count on today are the Tea Party conservatives. We need many many more. While we are taking the slow electoral route, Obama and his czars are moving full speed ahead. Marches on Washington could help to slow Obama down, maybe, but are hard to organize. Maybe the Tea Parties could think about holding big rallies in every state to protest against King Obama.

  6. What they don’t want you to know is that besides helping 44 million people to live on crumbs, you are also paying for 14 million bureaucrats to live on a comfortable salary with great retirement and health benefits while you are struggling to make ends meet.

    That’s the crux of it. It’s a perpetual employment and reelection scheme for politicians and bureaucrats. They care nothing for the poor. American statists have takien a page from Muslim countries who care nothing for Palestinians other than their use as propaganda tools

      1. That’s the whole problem, they USE everyone, as a means to THEIR end, they have spent other peoples money until now there is NO money, save recently printed Obama dollars…

  7. The Federal bureaucracy is one huge jobs program for people who otherwise would be unemployed (and possibly unemployable). Many people confuse welfare for food stamps and such, but the real welfare system of the US Government is for the people who work in government. In the end, it might make more sense to fire most of these bureaucrats and simply give what would be their salaries to the poor in the form of low-interest small business loans. Better yet–fire the bureaucrats and simply let the American people keep their hard-earned money.
    The biggest welfare recipient of all is, of course, Obama himself. It is not as though he is getting paid for working.

  8. Progressive taxation serves only to promote the creation of two classes: the rich and the poor. The rich can afford to shell out (overt and covert taxes), but the middle class is being driven into poverty as shown in the chart over a Mark Levin’s site.

    Taxing the rich more heavily won’t solve the problem, but I do admit that I find it abhorrent that the rich can afford tax shelters while the rest of us cannot.

    One of my billionaire friends (I have few such rich friends!) tells me that a tax deferred is a tax never paid. Somehow, he shelters his income and assets; I don’t know the particulars because, he tells me, these shelters are available only to those who have over 2 million dollars in assets (not counting one’s residence). In addition, this friend has paid in a mere 30 quarters of Social Security/Medicare tax (passive income being his only income for years), yet he collects Social Security and has Medicare coverage. Why should a person of such wealth be living off the taxpayer? His justification is that Uncle Sam’s taxes on the rich are oppressive — never mind that he has avoided so much of that federal tax.

  9. Great post, the larger the government the larger our problem. But the politicians feel just the opposite; they feel as if a larger government is the answer to the problem they have created. Until we reverse this entitlement mindset we will never solve the problem.

  10. “….you are also paying for 14 million bureaucrats to live on a comfortable salary with great retirement and health benefits while you are struggling to make ends meet.”

    And the more leftward a government gets, the more bureaucrats there are. And what’s worse, their function then stops being government service, it becomes the prevention of the relevant minister or senator from being embarrassed by some screw up or outrage.

    “folks, it is time for the taxpayers to revolt.”

    They’ll revolt when they see that they’re paying more in tax than actually taking home. When that happens, we’ll just stop working and when tax revenues dry up, the whole wretched thing will crash and burn.

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