The Case for Small Government

A Libertarian Perspective on Economic and Social Policy

April 03, 2006

Income Redistribution

Should governments redistribute income?

To address this question, consider two different aspects of redistribution: anti-poverty programs that benefit the poor, and general redistribution that transfers income from richer to poorer at every point on the distribution. Welfare, Food Stamps, and Medicaid are examples of anti-poverty programs. Progressive income taxation is the standard example of general redistribution.

Proponents of anti-poverty programs rely mainly on one or more of the following arguments:

that society should care for the poor out of compassion;

that everyone benefits from alleviating poverty, but since some people might free ride on the charitable actions of others, government must force everyone to contribute;

that private markets do not supply sufficient “income insurance,” so government must intervene;

that a dollar means more to someone in poverty than to Bill Gates, so government can increase aggregate utility by transferring from rich to poor;

that anti-poverty programs prevent revolution;

that anti-poverty programs make it easier for society to avoid distorting policies like rent control or minimum wages.

Each of these arguments has merit. Anti-poverty programs generate costs, of course, so their net benefit is open to discussion and depends on the generosity of the programs. But a reasonable case for some degree of anti-poverty spending exists.

None of the arguments for anti-poverty programs, however, applies with the same degree of force to general redistribution. Setting aside the low end of the distribution, high incomes result partly from luck but also from greater effort, longer hours, willingness to accept risk or unpleasant working conditions, and so on. Moreover, general attempts to redistribute income discourage work and saving far more than (well-designed) anti-poverty programs.

These concerns do not “prove” general redistribution is a horrible policy. And some degree of general redistribution is likely even in the simplest possible tax system. But the main focus of redistribution should be anti-poverty programs, not broader redistribution or “soak the rich” objectives.


At 11:19 PM, Blogger James said...

Why not just decriminalize acts of theft in cases where the proceeds will go to someone poorer than the victim and revise the laws on self defense to stipulate that in such cases, the victim is legally bound to submit?

At 4:40 AM, Blogger Al Brown said...

This comment has been removed by a blog administrator.

At 4:41 AM, Blogger Al Brown said...

I support income redistribution as long as income is redistributed to me.

Ideally, there shouldn't be any such stuff happening, but we need a plan to get us there. The first logical thing is to let the poor keep their own money, exempt them from taxation completely.

If any taxes are to be collected from the poor or from their employers, these funds should continue to be owned by the poor and should be accessible to them when they are out of work, need to buy a house, retire or have medical bills.

Obviously that is still a violation of their right to keep and use their own money as they see fit, but since they would not be paying for their share of government, the burden shouldn't be that horrible.

I am open to the idea of no taxes for anybody if there is a realistic plan for transitioning and continuing to finance the basic functions of government. So far, I haven't heard a realistic one that can actually be sold to this society.

At 5:54 AM, Blogger Mike Huben said...

Outside of Social Security, Medicare, and Medicaid (which are all social insurance programs), there is essentially no income redistribution in the US except antipoverty programs.

So this seems like a moot argument.

Progressive taxation, that great libertarian bugaboo, is not used for "general redistribution". It is an attempt at price discrimination in taxation. The vast majority of that money is used for defense and interest on the national debt. It is essentially NOT used for the social insurance programs: they have their own separate taxes,

Price discrimination is an important aspect of economic efficiency of monopolies, and government is a natural monopoly. Thus, if you think economic efficiency is a good thing, then you'd want progressive taxation.

You'd think an economist would notice this sort of thing.

At 6:56 AM, Anonymous Anonymous said...

"Each of these arguments has merit."


Are you sure you didn't mean to write "None of these arguments have merit"?

At 8:24 AM, Blogger Chris said...

Actually, Huben unless each individual receives exactly what they "paid" for in equivalent governmental services, then it is redistribution.

In fact, that is the only role of government. They take in revenues and distribute them according to desired ends, rather than who paid in what and how much.

At 9:23 AM, Anonymous Anonymous said...

I'm confused. I thought this website was meant for providing the case for small government.

At 11:39 AM, Anonymous Anonymous said...

It is immoral to take money by force from one person to give to another person. And the veneer of the government doing it doesn't make it any less immoral.

At 12:01 PM, Blogger James said...

huben, you have me convinced. Referring to a program as "insurance" is sufficient to prove that said program is not a form of income redistribution. QED

At 9:34 PM, Blogger Mike Huben said...

James, if you read Miron carefully, he's also saying social insurance is anti-poverty, not general redistribution. He lists medicaid for example. It would be nice if you noticed that I'm following HIS argument, and made a similar attempt.

Chris, you are not following the argument either. Miron writes: "general redistribution that transfers income from richer to poorer at every point on the distribution." He doesn't use the definition you invented. Please explain to me how defense expenditures and paying interest on debt, the major expenses paid for by progressive taxation, are Miron's sort of general redistribution.

You guys seem so eager to jump on me that you reflexively spout some libertarian nonsense that's irrelevant to the actual discussion.

It's kind of pathetic that Miron leaves it to you guys, and doesn't defend his own viewpoint.

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At 3:36 PM, Blogger James said...

huben says, "James, if you read Miron carefully, he's also saying social insurance is anti-poverty, not general redistribution. He lists medicaid for example. It would be nice if you noticed that I'm following HIS argument, and made a similar attempt."

Sure. Anti-poverty is an intention, redistribution is a mechanism. Neither excludes the other. Simularly, the intent to insure against unforeseen events does not make a program non-redistributive.

At 6:52 AM, Blogger Mike Huben said...

James, I guess we have to conclude you are incapable of reading and understanding Miron's second paragraph.

At 5:05 PM, Blogger James said...

mh says, "James, I guess we have to conclude you are incapable of reading and understanding Miron's second paragraph."

If by "we," you mean statists desiring to disregard the inconvenient, I couldn't agree more. Exactly what do you think I am not understanding?

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