Monday, September 27, 2010

Progressivity in our future?

Over at Econlog, Bryan Caplan asked "Does the U.S. Government Increase or Decrease Income Inequality". Last I looked, there were 21 comments. It is not a simple question.

Conventionally measured inequality has grown while the role of the state has grown. The role of "the state" should include the actions of all levels of government because federal prompts state and local to spend via matching and all sorts of other devices.

Let's also add that it is much more than taxation because the distribution of expenditures can move the overall distribution.

So what do we have? (1) A progressive income tax schedule, but thousands of pages that describe special tax breaks and treatments; (2) many taxes and levels of taxation, including the large and growing and regressive FICA; (3) expenditure programs that involve large projects (defense and infrastructure to name two); (4) armies of expensive rent-seekers incited by the first three; and (5) this morning's WSJ includes "The Regulation Tax Keeps Growing". Whereas the federal budgets is 21% of GDP, the regulatory cost adds another 14%. Does anyone believe that this is a force for progressivity?

I will never know why those on the left believe that a larger role for the state will augur a push for progressivity.