New Study Finds Liberal Tax Policies Are BAD for the Poor

tax

There’s an old saying that you can’t bring the poor up by bringing the rich down.

Redistribution may seem like common sense to some liberals. It evens out the field by taking from one group and transferring to another: but wouldn’t it be great it people could bring themselves out of poverty themselves without redistribution?

There’s been a longstanding debate over whether or not welfare discourages work. The evidence is quite clear that it does, and a consequence of that is less income mobility. In other words, many of the poor who are receiving benefits would otherwise be employed and climbing the economic ladder, and thus would one day reach a point where they require no government aid.

A new paper at University College London looks not at the effects redistribution has on mobility – but those taxes you need to fund redistribution in the first place. In the paper, its author economist Mario Alloza writes:

I find that higher marginal tax rates reduce income mobility. An increase in one percentage point in marginal tax rates causes a decline of around 0.8% in the probability of changing to a different income decile. Tax reforms that reduce marginal rates by 7 percentage points are estimated to account for around a tenth of the average movements in the income distribution in a year.

Milton Friedman once observed that we have a government that “increasingly taxes work and subsidizes non-work.” That was in 1977 – and the system has only become more liberal over time.

If we really want to help our poor, we should institute policies that encourage them to climb the economic ladder, not remain on the bottom collecting benefits.



Analytical Economist

About Analytical Economist

The Analytical Economist is a freelance financial, political, and economics writer. His work has appeared in a variety of publications, including National Review, the Foundation for Economic Education, Ludwig von Mises Institute, among many others.

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