A transfer of wealth occurs when the government adopts policies which favor one constituency over another. For example, the government decides it needs fewer military bases, so it has to decide which bases to close. Ideally, the Department of Defense would make that decision based on efficiency and logic, but the world isn't like that. Senators and Congressmen get together and work out deals to save bases in their districts. Some of these deal can get quite interesting - for example, Fort Lewis and McChord Air Force Base merged to become Joint Base Lewis-McChord or JBLM. That's actually a regression - the Air Force used to be part of the Army before it became a separate service. However, when the announcement was made, property values in the area dropped, because people who lived and worked on the bases were going to leave the area. On the other hand, some bases were left untouched, and there the property values rose. A transfer of wealth.
This is not necessarily a bad thing. This is what governments do.
So we can look at various current and proposed government policies with an eye towards what does the policy does in terms of transferring wealth from one group to another.
- Currently, the interest paid on mortgages is tax deductible. The interest paid on credit cards is not tax deductible. Why? It takes a modicum of wealth to buy a house. Actually, in the Seattle area, it takes more than a modicum. There are houses in my neighborhood that sell for over a million dollars. The people who are buying these houses are not poor people. They have mortgages and the interest they pay on those mortgages are deductible, so that reduces their taxes. Because they are wealthy, they pay taxes at a higher rate, so the deduction is quite valuable. By way of contrast, poor people cannot pay taxes. When they have a financial emergency, such as their car breaking down, they have to borrow to resolve the issue, so they use a credit card, or worse, a loan shark. None of this interest is deductible. Although the taxes on poor people is at a relatively low rate, why not give them a hand and make credit card interest deductible? Furthermore, everybody needs a place to live, so why is interest expense deductible but rent is not? When you are poor, even a few dollars can be a big help. This policy transfers wealth from the poor to the rich.
- Capital gains tax. Most tax filers will pay 15% on long term capital gains (see the Motley Fool. The highest rates that high earners will pay is 40%. At first glance, that would seem to penalize the wealthy - because the tax rates are progressive, those high earners are taxed at a higher rate. Seems fair to me. But, most wealthy people do not get wealthy because they earn a lot of money. Bill Gates and Warren Buffet didn't get rich on their salaries. They made their money because the prices of their stocks went through the roof. When Mr. Gates was the CEO of Microsoft, he made a relatively modest $200,000/year, the same as President Reagan (the president had a cooler private airplane). Why do we tax capital gains at a lower rate? The conventional wisdom is that we want to encourage investment. However, most people know, or ought to know, that the secret to becoming wealthy is to invest. So we don't really need to encourage people to invest. The rules on capital gains favor the wealthy.
- Single payer health insurance. I am a linux system administrator, and that makes me a valuable commodity. So I get paid well, and I get employer paid health insurance. Because the employer is part of a group, their insurance premium is relatively low. Those poor guys slaving over the deep-fat fryer at McDonald's are not getting employer pair health insurance. Before the Affordable Care Act (Obamacare), they had to buy insurance on the individual market, which is very expensive. Transfer of wealth from the poor to the wealthy. Furthermore, the insurance companies would play games with one another to avoid payment. For example, if two pedestrians bumped into one another and one was injured, the insurance company might sue the other person's insurance company. Lawsuits are horrifically expensive and time consuming. Inefficient. By way of contrast, with a single payer system, everybody just gets covered. No more expensive lawsuits, much less administrative overhead. Furthermore, there is a deep, dark secret about the way insurance works. Insurance is the business of spreading risk. The bigger the risk pool, the closer everybody's spending to the average. We know that Americans spend about $6000/per/year on health care costs. When I was unemployed and covered by COBRA, my premiums were about double that. Fortunately, I had enough savings so that I could cover it. But if I am not working, then I am not earning anything and eventually, I can't cover the premium any more. Now I am working again, and I am covered under an employer paid insurance plan, which costs much less because the company is spreading the risk over a larger pool. Transfer of wealth from the poor to the wealthy.
- Government payment of tuition at higher education. My siblings and I are incredibly fortunate. Just incredible. My parents were wealthy enough that all three of us could get undergraduate degrees with virtually no student debt. My parents also believed very much in the value of education, so from an early age, we were encouraged to do well in school. My parents are also not drug addicts, gamblers, or abusive. Well, there is nothing that the government can do about bad parenting, but the government can do something about the wealthy part. The government could pay for children's college education. This is actually not much of a stretch. Every child in this country has public school K-12, paid for by taxpayers. Transfer of wealth from the wealthy to the poor. Why is this such a problem? Because...
- Here in the State of Washington, it became obvious to the Supreme court that the State was not spending enough on K-12 education, in the famous McCleary decision. Because the State wasn't contributing enough, each school district held operating levies to partly fund the cost of the schools. In wealthy districts, such as Bellevue and Redmond, they could raise a lot of money for schools. In poor districts, such as Algona (Algona is the poorest town in King County), not so much. Because Bellevue and Redmond had more money to spend on their schools, their children got better educations, and the good people of Bellevue and Redmond didn't have to pay for the educations of children in Algona. Transfer of wealth from the poor to the wealthy.
- The fiasco in Flint, Michigan. Flint used to be a big manufacturing town, with lots of good paying jobs for machinists and others who worked in the factories there. However, the jobs went overseas, and the townspeople of Flint left to find other work. The people remaining are poor. The problem is that cities can't just downsize like that - they still have to pay for infrastructure and the bonds that they levied when times were good. Flint went bankrupt, and the State of Michigan took over. To save money, they disconnected their water system from Detroit and connected it to the Flint river. The Flint river has poor quality water, which caused lead to leach from the pipes and go into the brains of people who drank the water. Complaints were made that the water tasted bad and looked funny. They were ignored. Furthermore, the water district is supposed to sample the water periodically and look for contaminants, such as lead. If you run a water district, then you are supposed to know this. The people who ran Flint's water didn't do the required monitoring, to save money. Now, the people of Flint have heavy metal poisoning, and it isn't clear as I write this (4-February-2016) what the State of Michigan is going to do about that.
But don't take my word for it. Look at government policies that you care about and see where the transfer of wealth is. Do the same kind of analysis I've done - look at who benefits, and who pays.
Senator Sanders has made inequality in wealth his major issue. He is railing at a system that consistently screws poor people. Donald Trump, by way of contrast, is making great strides yelling about how the government screws everybody. Trump is correct, however, he has over simplified the issue, because the government is screwing some people more than others. None of the other candidates seems to have much to say about the issues. Sarah Palin presents a use case for funding higher education by the federal government, but she's not a candidate. Sanders, Trump, and Palin all speak from their hearts, they all clearly believe in what they talk about.
I have not decided if I support Senator Sanders or not. I agree with the Senator on a lot of issues, and so I ought to support him. However, the mass media are unwilling or unable to do the kind of nuanced policy analysis that I have just gone through (and you've had the patience to read), and I am rank amature policy wonk. They don't teach policy analysis in schools. It is easy to ignore Sanders because he forces people to think. Hillary Clinton, by way of contrast, has more experience in foreign affairs, but I don't see much of her talking about the issues that I care about. It's not an easy decision also because there are some people that absolutely hate Mrs. Clinton. I don't know why.
