Income Redistribution – A Brilliant Plan

Robert B. Reich, the author of Supercapitalism, teaches at Berkeley. Suffice it to say, therefore, that he is a left-wing loon. In an Economist interview (on podcast), however, he made a lot of sense.

In the context of a discussion about Mike Huckabee’s extremely regressive ‘fair tax’, Reich was speaking of income inequality (as always). What was striking about this discussion, however, was that [Reich] all but acknowledged the progressiveness of a lower tax rate (in contradistinction to the absence of an income tax) in that, with a lower tax rate, higher income earners pay more taxes both in relative and absolute terms. That is to say, rich people pay more as a percentage of the total tax bill as well as more absolutely. Heck, even Pelosi’s on the Kennedy/Reagan low tax train.

Now, the point Reich made was that, in order to combat income inequality and make the tax code more progressive, what needs to be done first is the following: since low and middle income folks pay little tax beside those payroll withholdings (e.g., Social Security, Medicare, etc.), taxes on [e.g., Social Security] withholdings should not start at zero. The withholdings should not begin, e.g., until someone makes $15K and the limit on what’s taxed should be raised accordingly (to offset the difference).*

This would be a huge redistribution of income and while it will hurt the upper middle class most, it won’t be much of a dent on the super-rich, since the lower tax rate more than offsets the difference they’ll pay.

Brilliant. Just brilliant. See? This just goes to show, even if you think someone is a nutjob, if they’re smart, it pays to listen (at least once in a while) because you might learn something!

*withholdings. The current tax code is set up to capture individuals’ first $90K or something for Social Security. Any income over and above that ($90K plus one cent to infinity) is not subject to withholding.

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