The Folly of Wealth Redistribution


There is now a long parade of smart thinkers advocating for large increases in taxes on the wealthy and then redistributing that revenue to the poor. President Obama said income inequality is the defining challenge of our time.  He also told a group of financial executives that “my administration is the only thing standing between you and the pitchforks”.  There are growing calls for a radical increase in the inheritance and gift tax so that wealth can be redistributed downward.


Wealth redistribution will not work because it is politically infeasible, practically unworkable and morally misguided. The unpopularity of the “death tax” with voters, the inefficiency of government interference in private markets and the sheer power and economic agility of the elite wealthy, all make it impossible for government to effectively address inequality directly.  Robin Hood politics won’t work.


Most Americans, including the poor, oppose hefty death taxes and wealth redistribution. Leftist intellectuals are bewildered at this psychology of the poor because it does not match their economic interests.  There are at least five explanations for the strong public opinion against wealth redistribution.

  1. The poor think they might be rich someday and wouldn’t want their future wealth taken away. This is pretty far-fetched and irrational. But beyond illustrating widespread risk illiteracy, it gets to the heart of the morality issue – people can empathize with someone whose wealth is being confiscated and handed out to others – how would you like it? 
  2. Hegemony – the wealthy elite have craftily convinced the public that taxing wealth will destroy freedom, end capitalism and ruin the American way of life. I wrote about oligarchs driving tax policy via conservative ideology in my 9/2/15 post. Northwestern University Professor Winter’s book Oligarchy (2011) is a well-researched, thoughtful articulation of the societal warfare upon which all law, economics and politics are based. 
  3. The middle class don’t begrudge the wealthy as long as they’re doing all right. The rich can have their yachts as long as I can buy a new bass boat and go fishin’. But the rising tide lifts all boats mentality doesn’t fly in tough economic times. 
  4. The middle class fear that taxes would be wasted on transfer payments to unworthy recipients who will use the generous wealth transfer payments to support less-than-commendable lifestyles. We saw that in Nicholas Eberstadt’s book Men Without Work (2016). There is no doubt that this would occur because it’s happening now as millions of able bodied men leach off others. Taxes for roads, police, libraries and schools –GOOD!; taxes so guys can sit around, get stoned, watch TV and play video games all day – BAD! 
  5. Finally, taxes on the wealthy would not only be used irresponsibly by government, the elite wealthy will always find a way to deflect those taxes down on to you – my mass affluent clients and family. Wealth is a weapon wielded in human warfare and it is used by the elite wealthy to protect their private capital. Government bureaucrats don’t stand a chance against their armies of brilliant, well-paid, tirelessly hard-working advisors and lobbyists.


Even if you remove notions of justice and fairness from the wealth redistribution debate, it’s a terribly inefficient way to transfer scarce economic resources. Next week, we’ll put Okun’s Bucket in our War Chest of awareness.


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