Share the wealth

By :: October 23rd, 2008

A few more thoughts on "Barack the wealth spreader," as Sarah Palin now describes the Democratic nominee. I'm inspired in part by commenter D.F., who wrote this morning, "Tax rebates don't work. We need a flat tax."

First off, John McCain is right when he says Obama's tax plan is redistributionist, if by that he means his rival would give his biggest tax cuts to the lowest earners. TPC calculates that Obama would cut the average tax rate for the lowest 20 percent of earners by more than 5 percent while he'd raise the rate by a roughly equal amount for the top 1 percent.

But the argument McCain is apparently going to use in the final days of his presidential campaign goes beyond that. It is that Obama is going to take "your" money and give it to someone else—someone by inference, far less deserving than you. This, McCain suggests, is a shocking and dangerous new development in tax policy.

There is only one problem. Today's tax code is riddled with examples of government "taking" money from one taxpayer and giving it to another. For instance, viewed through this lens, it takes billions of dollars from renters and gives them to homeowners. Washington explicitly redistributes tax revenues to corn farmers, developers of low-income housing, families with kids, and everyone who gets their health insurance at work. TPC's Len Burman and Eric Toder have estimated that for individual taxpayers alone the annual value of these targeted tax goodies—often called tax expenditures—is a whopping $750 billion.

McCain may have missed this, but for decades government has used the tax code for much more than raising money. These days, redistributing tax revenues are the principal way government encourages people to do what it wants and discourages them from doing what it doesn't.

"Sharing the wealth," as McCain puts it, is what government does. McCain's support of President Bush's 2001 and 2003 tax cuts may have been slow coming, but it has been whole-hearted throughout this campaign. And those bills were redistributionist heaven.

While he doesn't come out and say so, McCain, like D.F., seems to be arguing for a flat tax. Now, I am a huge fan of low rates (that would be rates, with an "s") and a broad base. It would be wonderful if we could move in the direction of a system where corn gets the same tax treatment as kumquats. McCain is right that Obama, who seemingly has a new tax credit for each of society's perceived woes, isn't getting us there.

But if McCain favors a flat tax, he should tell us and explain why he thinks it is a good idea to redistribute income by raising taxes on the middle class and giving the money to the wealthy.