Wealth Redistribution: It’s a two way street.

During this campaign season, members of the GOP are trying to frame the Democratic Party’s platform of raising taxes on the wealthy and spending on entitlements as a form of “wealth redistribution”, and they are right. It is wealth redistribution!

How do you redistribute wealth? You tax one class of people and use the funds to assist people of other classes. The funds may be used as direct payouts to programs such as welfare or unemployment. We issue low cost loans for home purchases or school loans on a need basis. We have also implemented many tax credits that pay out to certain tax filers. There are tax credits for those who have children and there was also the recent Making Work Pay credit, which gave $500 to all tax filers who worked. (This tax credit recently expired under the Recovery and Investment Act).

Government Spending on Entitlements

In 2011 we spent 230 billion on Medicaid, 106 billion dollars on unemployment insurance, 64 billion on HUD and 103 billion on Food & Nutrition, which includes the food stamp program. These four programs together cost us 503 billion dollars in 2011. There are some other entitlement programs, but these ones I’ve listed have the largest budgets. (I do not include Social Security and Medicare in this chart because those programs are paid for with the separate system of payroll taxes, which every worker pays for.) While it is hard to come up with an accurate total number of people benefiting from these programs, the chart above lists a known number of direct beneficiaries.  Most of the beneficiaries to these programs are low-income Americans. While unemployment, welfare and food stamps cover mostly those Americans without jobs, Medicaid covers about 50 million poor and elderly.

The GOP disagrees with spending money on these “entitlements”.  They’ve called it a form of wealth redistribution when we use tax dollars to pay for these programs. But these “entitlement” programs aren’t the only forms of wealth redistribution in our country. We have a long history of using other forms of wealth redistribution. Here are a few recent examples.

The T.A.R.P. program under George W. Bush gave $475 Billion dollars to financial corporations. Here’s a list of the top beneficiaries

TARP Beneficiaries

An additional $100 Billion has been spent on private contracts in Iraq to companies such as Halliburton and Bechtel who’ve each received multi-billion dollar contracts.  Halliburton is another company whose yearly profits range in the billions of dollars. Bechtel is not a publicly traded company and doesn’t make their profit margins public, but it’s probably in line with those of Halliburton.

You may say that helping these companies increase their profits benefits all shareholders. But who are the shareholders? It’s mostly people from the upper income bracket.  80% of tax filers who make over $250K per year, earn income from dividends. Only 20% of tax filers who make under $250K, have dividend earnings. A total of only 30 million tax filers have income from dividends and a fewer number earned income from those companies that received government contracts or bailouts.  (30 million tax filers reported dividend income in 2011. More may have benefited from stocks tied to retirement accounts, but this doesn’t benefit anyone in the short term.)

The combined cost of Medicare, Unemployment, Food Stamps and Housing per year, which benefits over 60 million low-income Americans, is less than what was spent on TARP and Iraqi contracts combined. Then consider that our tax dollars spent on TARP and Iraq contracts benefited less than half the number of people than the above listed “entitlements” do. This form of “corporate welfare” benefits a larger percentage of people from the upper income brackets.

With taxation the government collects wealth. Then depending on economic conditions and our national interests, the government distributes these resources depending on what is best for the public good.  Spending on things such as Medicaid, Housing, Food and unemployment is not simply wasted on those who need it. First, it fulfills the moral objective to help those in need. Secondly, it is money that goes straight back into our economy.

The TARP program, while highly controversial, was also an economic necessity. It helped to keep large financial houses afloat. If these banks went under, it could have caused catastrophic ripples through our economy. But the biggest beneficiaries to the TARP program were shareholders, people who disproportionally come from the higher income bracket. The same is true for the shareholders of companies such as Halliburton. Companies that have received large government contracts and report billions in profit only benefit a small number of Americans who are disproportionately represented by the upper classes.

The programs I’ve mentioned here aren’t the only ones. There are numerous other forms of welfare for low-income Americans and other programs that benefit corporations and the upper income earners. Wealth Redistribution isn’t just a practice reserved for the poor. Wealth has always been redistributed upwards as well.

If you are opposed to wealth redistribution in the form of “entitlements” to help people in their time of need, you should be as vehemently opposed to wealth redistribution for private industry.

So what are our choices? Either the government doesn’t tax and spend at all, where we blindly hope all will sort itself out or we can put some faith in the government and our elected officials to distribute funds in a manner that looks to benefit our entire country as a whole. One day our priorities may be to help more individuals because there is high unemployment and another day we may need to subsidize industry to keep the markets healthy. Either way, these are all forms of wealth redistribution that America has participated in.

article by: Lawrence F. Mignogna