Not redistributing the wealth, redistributing the growth

By Zac Bears


Common political parlance refers to many government programs as being redistributive. Think of the United States economy as a single, large pie of income, GDP. Redistributive government takes a slice of that pie from one person and gives it to someone else. The Republican caricature of a Democrat is an income thief that takes hard-earned income and gives it to a poor, non-working minority or burns it on a wasteful government program; however, pragmatic economic policy from both parties focuses on making the pie grow quickly and fairly, not redistributing from a fixed pie.

American income inequality looms over our economy much as it did in the 1920s, when income growth for the top 1 percent of earners was 75 percent and income growth for the nation as a whole was only 9 percent. We face income growth over the past decade almost exclusively distributed to the top 10 percent of Americans.

New Deal and Great Society policy improved income inequality by transferring money from the rich to the poor, almost like cutting a check from rich to poor. The policy was effective and succeeded in reducing poverty around the country, but was also inefficient, Robin Hood-style government. Gone are the days of Aid to Families with Dependent Children (AFDC), the program that created the modern image of welfare for a great majority of Americans. Stewarded by Bill Clinton, Temporary Assistance for Needy Families (TANF), with work requirements and welfare caps, replaced AFDC in the 1990s, and has saved billions of dollars and continues to incentivize a good job over a good handout.

The triumph of the American economy in the 1990s rested on the growth of the middle class. Home-ownership grew more than ever since the post-WWII economic expansion, with average net worth increasing by almost 25 percent, and unemployment fell near the lauded 4 percent mark in the late ‘90s, half of our current rate. At the beginning of the ‘90s, government raised taxes to cover deficits, provide services, and invest in essential research; by the end of the decade, the U.S. Federal budget deficit was null – the government ran a $230 billion dollar surplus during the 2000 fiscal year.

Below average income and job growth defined the pre-crisis 2002-2007 economy, but many families saw almost no increase in household income. Most middle-class growth since 1980 is due to a system of private debt — coined “privatized Keynesianism,” by Wolfgang Streeck in “The Crises of Democratic Capitalism— that replaced the public system of stimulus through debt during the 1980s and 1990s. This system relied on debt and deficit spending for economic growth, but placed the burden of debt not on the public collectively but on the public individually. The debt burden has shifted to the individual consumer in the economy, become decentralized, and is no longer the responsibility of a central regulating authority.

Much of the economic growth of the 2000s went to the top 20 percent of American households due to the Bush tax cuts of 2001 and 2003 that decreased marginal tax rates for all tax brackets and lowered the top rate to 35 percent. The Bush tax cuts were the major economic policy of the 2000s and had no real effect on economic growth, according to the Bureau of Economic Analysis. Most growth in the 2000s increased the income of only the highest income earners.

Economic recovery from the Great Recession has been slow and arduous, and, while the Obama administration touts economic growth, this growth has focused on high-income investment and stock market growth and not on increasing employment for the great majority of Americans. Some of this is due to the Republican Congressional obstructionism that has blunted Democratic efforts to improve employment with funding for new projects, job training and fewer taxes. Still, the Romney-Ryan Republican ticket espouses an economic policy of lower taxes, fewer regulations, and reckless spending very similar to the Bush policies that reigned over a decade of massive deficits, low growth and growing unemployment.

This election is a choice between two different economic ideologies: Governor Romney’s plan would cut tax rates on the top earners, reduce Federal spending, fundamentally change Medicare and Medicaid, and continue to grow the economy from the top down, with most economic growth going to a minuscule portion of the citizenry. The Obama ideology is to grow the economy for the middle 60 percent of earners, increasing the market for American goods and services, improving the lives of tens of millions of American adults and children, and growing our tax base and revenues to eliminate our deficit, shrink our debt and innovate in the 21st century.

The Republican proposal focuses on keeping the economy growing for the rich. The RNC will call Democratic proposals redistributive, but redistribution means giving someone an unearned slice of pie. Distributing growth fairly means that everyone earns a larger slice of pie, and no one goes hungry.

Zac Bears is a Collegian columnist and can be reached at [email protected]