I think we should simply give up trying to redistribute income on the tax side and accept that it can only be done meaningfully on the spending side... That's more or less the way it works in Europe, where conservatives accepted the welfare state in return for having it financed conservatively through a value-added tax. Liberals accepted this regressive form of taxation in return for conservatives accepting the legitimacy and permanence of the welfare state.
Over the years, I have asked a number of liberal friends if they would take this deal. They would get a pot of net new government spending of some amount--say 1% of GDP--to spend any way they like to help the poor. But in return, they would have to let me have a low-rate, consumption-based tax system and I would agree to raise taxes enough to pay for the additional spending. It seems like a free lunch to me, but I've never found a liberal willing to even consider the deal. They are too wedded to maintaining steeply progressive tax rates on income as a matter of equity.
That's funny - Stephen Gordon has been advocating this. So have I.
My only guess is that Bruce has only been asking American liberals. Perhaps he needs to talk to more Canadians. If he's ever in London, Ontario, I would be happy to buy him a beer.
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I would actually be willing to give my liberal friends more than 1% of GDP to spend on the poor if they would really be willing to give me the tax system I want and to guarantee that it would stay in place. The reason is that the US tax system has a huge deadweight cost–a burden on the economy over and above the revenue collected. Estimates suggest that this cost may equal a third of revenue collected. So, for example, a tax reform that reduced the deadweight cost by 10% and raised net revenue by 10% would leave the economic burden of the tax system unchanged–it’s really a free lunch.
One major problem, as I see it, is the fact that uninsured people increase the burden for the rest of the country.
As it stands, if a poor person is uninsured, and needs healthcare, then he gets it anyways. Afterwards, when he is unable to pay, he declares bankruptcy, and the cost is borne by the hospital. In effect, the current system involves a major redistribution of wealth from hospitals to poor Americans, increasing costs associated with the healthcare system. This is why the number of deaths is so low – emergency rooms, for example, are required to rescue someone’s life even when they know that the person has no health insurance.
With a mandate, there’s more of a balance between the beneficiaries of healthcare and those who pay for it.