Michael Barone‘s latest column for the Washington Examiner explores the impact of tax increases on “the rich” for the plight of the poor.
It turns out, [congressman Paul] Ryan reports, that federal income taxes (including the refundable Earned Income Tax Credit) actually decreased income inequality slightly between 1979 and 2007, while the federal payroll taxes that supposedly fund Social Security and Medicare slightly increased income inequality. That’s despite the fact that income tax rates are lower than in 1979 and payroll taxes higher.
Perhaps even more surprising, federal transfer payments have done much more to increase income inequality than federal taxes. That’s because, in Ryan’s words, “the distribution of government transfers has moved away from households in the lower part of the income scale. For instance, in 1979, households in the lowest income quintile received 54 percent of all transfer payments. In 2007, those households received just 36 percent of transfers.”
In effect, Social Security and Medicare have been transferring money from low-earning young people (who don’t pay income taxes but are hit by the payroll tax) to increasingly affluent old people.
The Democrats, perhaps following the polls and focus groups, have been protecting these entitlement programs, which have done more to increase income inequality than the Reagan and Bush tax cuts put together.
