We have recently been told by the Supreme Court that the mandate to purchase health insurance will stand and that failure to do so will lead to fines in an amount that has yet to be determined. These fines however, have been labeled (or justified) as a tax, not a penalty.
Taxing individuals as an incentive to take action or to help support a system for “the greater good” is an example of income redistribution. Simply put, income redistribution is created to transfer income from the wealthier to the less financially secure directly or indirectly.
Those who favor income redistribution argue that it helps foster a more equal society and addresses social problems linked to poverty. Those against the plan feel that it is tantamount to theft, taking away hard-earned, saved income obtained through hard work and ingenuity to those who may not or could not earn the same income.
When government regulation is implemented to redistribute incomes for a fairer or nobler purpose, inevitably those taxed develop impaired incentives. Businesses seek to find ways to avoid paying. Special incentives like tax credits are established while unions and employees negotiate for health insurance which acts as a substitute for raises, further distorting economic relationships, lowering the national income and lowering the per-capita income metric.
A real issue here is the resentment that builds with those who are running the businesses and creating a negative incentive effect on wage earners and tax payers.
Anecdotally, redistribution does nothing positive. Low-income beneficiaries view the distributions as an entitlement or “right” and act of welfare. Rather than a feeling of gratitude, it is viewed as society’s responsibility.
Most economists agree that income redistribution decreases work and innovation. So while there may be more equity in the system as a whole with redistribution, there is a general decline in overall income.
Society must face the complex question of equity with declines in income levels or a policy which encourages income growth as a likely result. The proposed tax increases and increased demand on tax increases, may create a highly volatile inflationary alternative.
When people loose incentives and the initiative to think and act independently but rather let someone else tell them what do do or how to live for getting their basic needs met, the groundwork is established for a dictatorship. Everyone is equal (except for those in power of course)
Are we heading down this road?
- July 5th