Folks on the left tell us that they want to help the less fortunate.
I sometimes wonder if their real motive is to penalize success and punish the “rich,” but let’s be charitable and assume that many of them truly wish to help the poor.
That’s a noble sentiment, to be sure, but this is why it’s also important to look at the consequences of policy, not just the intentions.
I explained last year that certain left-wing fiscal, regulatory, and monetary policies actually harm the poor and help the rich, and I augmented that analysis earlier this year by showing how farm policies line the pockets of upper-income people.
Let’s now add to this research by looking at a new study (h/t: Tyler Cowen) from Mario Alloza of University College London. Here are some of the key findings from the study’s abstract.
Household panel…between 1967 and 1996 is employed to analyse the relationship between marginal tax rates and the probability of staying in the same income decile. …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. …the effect of taxes on income mobility…is particularly significant when considering mobility at the bottom of the distribution.
And here are some of the findings from the study.
…to the extent that income mobility is a desirable feature of an economy, it is then relevant to consider how fiscal policy may affect it. …The results obtained suggest that higher marginal tax rates reduce income mobility. Particularly, I find that an increase of one percentage point in the marginal rate is associated with declines of about 0.5-1.3% in the probability of changing deciles of income. …The economic mechanism that induces this impact seems to be related to the labour market incentives created by changes in the tax schedule. …While some studies have pointed out to the importance of progressive taxation in addressing inequality, the results from this paper suggest that such changes may have a detrimental impact on income mobility.
Not surprisingly, it turns out that marginal tax rates are the most important variable, as we learned in our discussion of Cam Newton’s (fiscally) disastrous Super Bowl.
The effect of a percentage point reduction in marginal tax rates fosters relative income mobility across deciles…by about 1%. Similarly, households are about 6% more likely to stay in the same quintile of income when the marginal tax rates goes up by one percentage point… This evidence suggests that the economic mechanism that determines the effect of taxes on income mobility is based on incentives.
And here are more details on how higher tax rates appear to disproportionately harm the less skilled, while lower tax rates are more likely to help.
…non-college are, on average, more likely to move down in the income distribution, while college households are likely to move up (or, at least, less likely to move down) as a result of an increase in the marginal tax rates. …Fiscal reforms that homogeneously reduce marginal tax rates seem to contribute to income mobility by making households with non-college education more likely to occupy relatively higher positions within the income distribution (and vice versa for college-graduated households).
The bottom line is that some of our friends on the left want to shoot at the rich, but they wind up wounding the poor instead by greasing the rungs on the ladder of economic opportunity.
Which is why, for the umpteenth time, I’ll emphasize that market-driven growth is the moral and practical way to help the less fortunate.
