The Moral Implications of Redistributive Economic Policies - PowerPoint Presentation

Slide1

The Moral Implications of Redistributive Economic Policies

Ethics LS 707

Team Members: Allison Pyle, Lou

Maynus

, Sonya White and

Leatha

WilliamsSlide2

Key Terminology

Market Economy - An economy that operates by voluntary exchange in a free market and is not planned or controlled by a central authority; a capitalistic economy.

Mix-market Economy-

A

mixed economy

is an economy that includes a variety of private and government control; reflecting characteristics of both capitalism and socialism.

The United States is a mixed marketed economy, because of

substantial market regulation, agricultural subsidies, extensive government-funded research and development, Medicare/Medicaid. Slide3

Present Status of the United States as an Economic System

The United States is a mixed marketed economy, because of:

substantial market regulation,

agricultural subsidies,

extensive government-funded

research and development and

Medicare/Medicaid.

Source:

Gordon, D. (n.d.). Justice and redistributive taxation: james buchanan versus lugwig von mises. Retrieved from https://mises.org/journals/rae/pdf/rae8_1_5.pdfSlide4

Key Terminology- Policies of a Mixed Market Economy

Policy

– this is a statement of what the government tend to do or not to do, enforce

or not enforce in regards to laws, decisions or orders or any combination of the three (examples of policies are constitutional, statutory and regulatory)

3 major types of policies:

Distributive

– these policies primarily benefit a small group and is considered a political process because of logrolling and pork-barrel spending that is associated with it.

Regulatory

– governs the conduct of business and market to protect the welfare and interest of the population.

Redistributive

– the transference of resources in terms of wealth, property, various rights or other valued items from one group in the population to another group (i.e. social classes and racial groups).

Source: Lending, B. (2001). Four systems of policy, politics and choice by

theodore

j.

lowi

. Retrieved from

http://filebox.vt.edu/b/blending/vap-lowi-bl.htmSlide5

Philosophical Underpinning of the United States Mixed Market Approach

Anglo-Saxon Model

Developed in the 1970s… out of Chicago School of Economics

Chicago School of Economic Thought:

Postwar – development

Root in John Maynard Keynes

Macroeconomics are rooted in Keynesian thoughts

Microeconomics are rooted in neoclassical thoughts

Major characteristics:

Low rates of taxation, open financial markets, low labor market protection and collective bargaining

Neoclassical Thoughts: Adam Smith, David Hume and John Stuart Mills

Free Trade: Laissez-faire

Labor vs. Mercantilism

Source:

Richter, E. (2004). Rhine capitalism, anglo-saxon capitalism and redistribution. Retrieved from https://publish.indymedia.org.uk/uk/servlet/OpenMir?do=getpdf&id=299588&forIE=.pdf Slide6

Key Understandings: Present Status of Policies

The United States government imposes taxes at all levels of government in order to finance spending programs intended to benefit citizens.

The questions for this project regarding fiscal policies are:

What is the cost verses the benefits of these fiscal policies?

How are the cost and benefits of these fiscal policies distributed across social classes, age groups and racial classes?

How much do people pay in taxes verses how much is spent on them by the government?

Source:

Prante, G. and Hodge, S. (2013). The distribution of tax and spending policies in the united states. Retrieved from http://taxfoundation.org/article/distribution-tax-and-spending-policies-united-statesSlide7

Distribution vs. Redistribution

Present Status of Fiscal PoliciesSlide8

2012: Collected $4.2 Trillion, Spent $5.5 Trillion for a Deficit of $1.3 TrillionThe chart is illustrating fiscal policy by income cohort and government levels

Source:

Prante, G. and Hodge, S. (2013). The distribution of tax and spending policies in the united states. Retrieved from

http://taxfoundation.org/article/distribution-tax-and-spending-policies-united-statesSlide9

Spending Ratios by Income CohortSlide10

Pre/post-RedistributionSlide11

Status of Government Redistribution Slide12

Major Theorists

What do they say about redistribution of wealth?

John

Rawls

Adam Smith

Immanuel Kant

Ayn

Rand

Friedrich NietzscheSlide13

John Rawls' Method(Stanford, 2008)

Original Position

Veil of Ignorance

Choosing principles that will govern the world

All generations have the same rights to resources, future as

well as present.  Slide14

Building a Better America One Wealth Quintile at a Time

Harvard Business School Study – followed Rawls

Surveyed to answer two questions –

Is there consensus among Americans?

Preferences of “regular Americans”

John Rawls, 1971Slide15
Slide16
Slide17

Adam SmithC

apitalism’s Founding Father

“

The great object of the political economy of every country is to increase the riches and power of that country.” 

Smith also argued that capital for the production and distribution of wealth could work most effectively in the absence of government interference.

Such a laissez-faire—that is, “leave alone” or “allow to be”—policy (a term popularized by Wealth of Nations) would, in his opinion, encourage the most efficient operation of private and commercial enterprises.

He was not against government involvement in public projects too large for private investment, but rather objected to its meddling in the market mechanism.Slide18

Immanuel Kant

Kant would say redistribution is immoral because the maxim on which it is based could not be universally applied without running into the law of non-contradiction.

The welfare state is immoral also because it allows the recipient to make demands on the taxpayer with out providing the taxpayer with an equivalent value. Redistribution is immoral, more generally, because it allows one person to treat another as a means to the first person’s ends.Slide19

Ayn Rand: Queen of the Universe

Rand believed that

a government that taxed billionaires to help pay for healthcare and education for impoverished children was not just unwise economically, it was also immoral.

Ayn

Rand considered government and democracy – systems of mob rule.Slide20

Thursday, 07 February 2013 By The Daily Take, The Thom Hartmann Program

Ayn

Rand continued…

They don’t want the 21

st

Century to be “America’s Century.” They want it to be the “Billionaire’s Century.” And if they succeed, then the middle class in America - and through most of the developed world - will go extinctSlide21

Friedrich Nietzsche(Moral Philosophy, 2009)

All creation is motivated by “will to power”

We seek to flourish and dominate as an element of survival

Hampered by Christianity which causes “slave morality”.

…we will see that the whole edifice of slave morality must crumble and with it the notion of equal worth.Slide22

Redistributive Policies

Redistributive Policies:

The government taxes one group of people to provide benefits to another group

Types of Redistributive Policies:

Income stabilization (Unemployment/Retirement), Welfare (Head Start, TANF, Food Stamps, School lunch programs), Health Care (Medicare/Medicaid), Housing (Fair housing, FHA, Section 8), Income distribution (Tax Code)

http://cbapp.csudh.edu/depts/adjunct/ehuntington/pub304/chapt_4_public_policy.htmSlide23

Redistribution through taxation

Progressive taxation (increasing equality)- personal income taxes, property taxes

Regressive taxation (indirect)- taxes on services/goods and international trade

Corporate taxation

Taxes should not distort incentives to work, invest, and create work.

Prasad, (2008)Slide24

Taxation

Income, profits, and capital gains:

based on the net income of individuals, profits of corporations and enterprises, and capital gains on land, securities, and other assets

Goods and Services:

sales tax, taxes on services or the use of goods or property

International trade:

import/export duties, profits of import/export monopolies, exchange profits/taxes

Prasad, (2008)Slide25

Redistribution through social transfers

Contributory-

contributions made by beneficiaries (and their employers) determine entitlement to benefits

Non-contributory-

require no direct contribution from beneficiaries or their employers as a condition of entitlement to receive

benefits; usually financed through taxes or other state revenues.

http

://www.ilo.org/gimi/gess/ShowTheme.do?tid=11Slide26

Types of Social Transfers

Social assistance benefits

provide cash benefits to

those less advantaged

usually based on some form of means-test.

They may also provide

or facilitate access to benefits in kind, such as access to health care and other social services

Social insurance

grant access to health care and other social services

or

pay periodic cash benefits throughout the specific

time period.(ex. old age, unemployment, employment injury, maternity, sickness, etc.)

Countries

that spend more on social transfers tend to have a lower income inequality than countries that have limited spending on social transfers (Prasad, 2008).Slide27

Conditional Cash Transfers (CCTs)

What is it?

The main idea is to provide cash to poor families on certain conditions that are linked to education, health, and nutrition.

Pros of CCTs:

Directly reaches poorest families, improves human capital, reduces poverty and income inequality, and breaks the inter-generational poverty cycle.

CCT criticism:

Exclusive focus on poor households, contrary to universal and egalitarian systemsSlide28

Redistribution through social expenditures

Education

Health Care

Social Services

Medical Care

Unemployment

Retirement/ Survivor Pensions

Social Security

Prasad, (2008)Slide29

Redistribution and PovertySlide30

Sharing and Redistribution2 examples of how this does not work

Pilgrims at Plymouth, Massachusetts

Community Garden – no one took responsibility they almost starved

Productivity improved when every family was responsible for their own garden

Chinese Government’s failure

Farmers were given land and told what to grow. Crop production was minimal and of poor quality

Farmers were given a choice of what to grow and were allowed to keep a proportion of the profits from the crops. Increased output from the farms and additional income for the families.Slide31

Taxes – The foundation for redistribution

Tax increases usually have a negative effect on the economy

Less money for consumers to spend, invest and decreases revenue

Inflation eventually brings income up to the point that the middle class are hit by taxes originally meant for “the rich”

Tax laws do not include adjustments for inflation

Taxing the rich shifts money from the private sector to the government

People can invest and spend their money efficiently

The government spends the money based on lobbying by special interests or wastes the money in bureaucraciesSlide32

Taxes – The foundation for redistribution

By taxation, the government has little motive to reduce spending or control waste

Increasing the tax rates on the rich may make them leave the country or move their assets elsewhere thus reducing the tax revenue and tax base

Creates animosity between the classes by blaming rich for excesses and the poor for being lazy

Increased taxes means smaller profits and revenue to start new businesses

Efficiently run private charities receive less money with more funds going to bureaucracy that waste money and a much smaller percentage makes it to the people in needSlide33

Milton Friedman’s Thoughts on Redistribution

Friedman proposed the replacement of the existing U.S. welfare system with a negative income

tax

This gives the poor a basic living wage above what they earn

Friedman also argued that most government programs benefited the middle class and not the rich or poor

Higher Education

Social SecuritySlide34

Poverty Rate and Spending On PovertySlide35

Share of Federal Taxes by QuintileSlide36

Quintiles and Mean Income

Lower Quintile $11,239 Range $0 - $20,262

Second Quintile $29,204 Range $20,263 - $38,520

Third Quintile $49,842 Range $38,521 - $62,434

Fourth Quintile $80,080 Range $62,435 - $101,582

Upper Quintile $178,020 Range $101,583 - ??

Top 5% $318,052Slide37

A Plan for ChangeSlide38

Things that Redistribution can changeHealthcare

Retirement

Empowerment of Workers

Public Infrastructure

Roads

Schools

Pathways out of Poverty

Public Education

Universal Healthcare

Adequate Housing

Work and FamilySlide39

Pathways out of PovertyPublic Education

According to the United Nations education of poor children and especially females has the potential to reduce poverty by 12%

Economically disadvantaged children need approximately 40 – 100 percent more funding per child

In the United States $1,307 less is spent on the education of each economically disadvantaged child

591 Billion will be spent for public education this year

Over $11,000 per child – this amount includes all aspects of the school system – facilities, transportation, materials and personnel this amount includes federal, state and local spendingSlide40

Pathways out of Poverty

Public Education

Increasing the funding for economically disadvantaged children (Approximately 23 Million) by $1,500 each would cost 34.5 billion dollars annually. (a 6% increase in funding)

If this additional funding were used fore the sole purpose of hiring teachers, 345,000 new teachers could be added to the teaching force (Assuming $100,000 per year for salary and benefits)

This would be a 10% increase in the teaching force.

For a school with approximately 350 elementary students in WV, this would mean an addition of two teachers to the ranks and reduce the average class size from 22 to 19. Slide41

Pathways out of PovertyHealthcare

Provide basic healthcare for children with site based clinics in schools

Provide low cost healthcare for adults

Provide health and wellness education to parents of children in poverty

Reduce the bureaucracy needed to run these programs to keep costs downSlide42

Pathways out of PovertyAdequate Housing

Characteristics

Running water

Bathrooms

Safe heating and cooling systems

Free of harmful materials (lead, asbestos etc.)Slide43

Redistribution schemes to pay for these objectives

Eliminate bureaucratic waste by direct funding to school districts from the federal and state governments. Per pupil amounts sent to districts based on enrollment.

Remove the cap on Social Security taxes to provide additional revenue for social security to keep it solvent and free up money for other projects.

This however would compound the problem later since the no cap measure would also mean that these higher paid workers would collect higher benefits when they retire

Eliminate many of the tax breaks for the wealthy. These in essence are a redistribution to the wealthy –(give examples from the article in the notes section.

Slide44

Taxation solutions

Indirect taxes (regressive)- poor tend to spend higher proportion of income on goods and services than do the rich.

Make indirect taxes more progressive by:

Targeting

taxation on goods and services consumed at different

rates

by the rich and the poor.

Lower

or eliminate the

Value Added Tax

on products which make up a large proportion of the poor household’s consumption, such as food, while increasing taxes on products generally consumed by the rich, such as luxury goods.Slide45

Taxation solutions

The US tax system is becoming less progressive as marginal income tax rates have decreased from 91% in the 1960s to 35% in 2003.

Payroll taxes funding social security have increased from 6% to 15% with a cap at $90,000 meaning people above this income level enjoy lower tax rates.

To return to a more progressive system, the US could increase funding for social expenditures by removing the income cap requiring those above the $90,000 cap to pay taxes based on their full income. Slide46

References

Behrendt

, C.

&

Hagemeyer

, K. (2012). Global Extension of Social Security. Retrieved from

http

://www.ilo.org/gimi/gess/ShowTheme.do?tid=11

Economic

Policy Institute, (2010). Agenda for Shared Prosperity. Retrieved from

http://www.sharedprosperity.org/

Norton, M. & Ariely, D. (2011). Building a Better America – One Wealth Quintile at a Time. Retrieved from http://www.people.hbs.edu/mnorton/norton %20ariely%20in%20press.pdf Pojman, L. & Tramel, P. (2009). Moral Philosophy, Friedrich Nietzshe: Beyond Good and Evil.Prasad, N. (2008). Policies for redistribution: The use of taxes and social transfers. Geneva, Switzerland: International

Institute for

Labour

Studies.

Stanford, 2008. John Rawls: Stanford Encyclopedia of Philosophy. Retrieved from

http://plato.stanford.edu/entries/rawls/

Slide47

Welch, W. (2013). Adam Smith: Capitalism’s Founding Father. Retrieved from

http://www.vision.org/visionmedia/biogra

phy

-

adam

-smith/868.aspx

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