Friday, December 21, 2007

Oh, Those Wealthy "Special Interests"

Via Marginal Revolution:

A common complaint about government by Progressives is that not only are the rich undertaxed, but the poor don't receive enough of the benefits of government. A good chunk of this argument is based on the belief that government largesse goes largely to evil "special interests," and particularly to wealthy such interests.

As Alex Tabarrok points out, though, the vast majority of federal government spending goes to Medicare, Medicaid, Social Security (from which the rich receive less than they put in), and notably unemployment and welfare (which obviously don't benefit the rich at all, since they are almost by definition not on unemployment or welfare). Add to that the 9% of the federal budget that goes to interest on the national debt (thanks to out of control government spending dating back decades).

Another 16.6% of the budget goes to national defense. This is, frankly, absurd. But as one commenter at MR points out, national defense is pork heaven as a jobs creation program (although wealthy individuals certainly still see a good chunk of the profits from defense spending). Tabarrok's blanket guesstimate that this spending benefits the rich about the same as they contribute in tax dollars is thus probably pretty close to accurate.

Finally we come to the last 10.7% spent on "everything else" in the federal budget. This largely includes roads, but also other government programs like schools and most of those gigantic government bureacracies that employ so many Americans. Tabarrok again uses the guesstimate that this benefit goes to the rich in proportion to their tax burden. In this case, I suspect much of the benefit really goes to the poor, except for things like ridiculous agriculture subsidies. Transportation expenditures benefit everyone roughly equally regardless of tax burden, though business owners probably get a slight added advantage from savings due to marginally more efficient transportation of goods and services.

Even using Tabarrok's intentionally generous accounting, he finds that 63 cents of every dollar paid in taxes by the evil "rich" people winds up transferred down the ladder.

One of the important things this says in my mind is that the so-called poor and "working classes" are much more powerful lobbies than everyone thinks. Unfortunately, they apparently do not qualify as "special interests," which makes massive wealth transfers perfectly acceptable. One can argue that such wealth transfers are a good idea (I'd vehemently disagree, but at least it's a good faith argument).

What one cannot argue, however, is that "working class" Americans are not a powerful interest group unto themselves. Certainly any such argument pretends that "working class" Americans don't vote and, to the extent they do vote, politicians don't care about those votes. Which is silly since the vote of a rich person counts just as much as the vote of a poor or working class person; except that the poor or working classes have a lot more votes to give out. If enough poor or working class voters refuse to vote for a candidate, that candidate loses the election and no longer has the ability to help out the "evil" wealthy special interests.