Income Distribution as a Public Good

2008 Presidential elections brought income redistribution to the forefront. President-elect Obama has made statements backing this economic philosophy. These actions would make income redistribution a public good. Government has enough power to tax certain groups and redistribute the money to other groups; however, does having and using this power make income redistribution a public good?

Income Redistribution as a Public Good

Traditionally, United States has believed in free market principles. Especially, when it came to household income. Household income was directly proportionate to the amount of work they did, however, the 2008 presidential election signaled a shift in this philosophy. President-elect Barack Obama has espoused beliefs that would treat income and its redistribution a public good.

President-elect Obama said, "I think when you spread the wealth around, it's good for everybody" (Impomeni, 2008). Obama has stated that Americans making more than $250,000 should have a tax increase. Americans making less than $250,000 should get a tax decrease. This plan would essentially establish income as a public good, however, is this establishment good economics?

Public goods are differentiated by several characteristics. Deardorff explains a public good as "a good that is provided for users collectively, use by one not precluding use of the same units of the good by others" (2001). Besides being available to everyone public goods are also non-rival and non-excludable. Case and Fair explain non-rival in consumption as "a characteristic of public goods: One person's enjoyment of the benefits of a public good does not interfere with a consumption of it" (2004). Language of Economics defines non-excludable goods as "goods whereby it is impossible to stop a person consuming that good when it has become publicly available at a relatively low cost" (n.d.).

United States has traditionally dealt with wealth as a household commodity. Each household and its members were free to work as little or as much as they chose. In return, their work or lack thereof would be reflected in their income. Government, at all levels, ran by taxing everyone's income, however, there was no effort to decide if someone was making too much or too little.

Our current employment system requires employers to produce a job, potential qualified employees to apply for the position, get hired, and perform adequately enough to keep the job. In recent years, more positions have required college education or advanced trade skills. Is it possible to make these positions non-excludable or non-rival in consumption? The company only has one position. More than one person cannot hold the position at the same time. Income is paid to the person doing the work, not everyone in the country. So the positions cannot be turned into public goods.

However, can the income itself be turned into a public good? Income redistribution endeavors to do just that. Income redistribution is defined as "a government policy to redirect income to a targeted sector of a country's population" (Income Redistribution, 2008). Income redistribution depends on breaking Americans up into classes lower, middle, and higher. Levying higher taxes on the higher class, i.e. people making over $250,000 a year and redistributing it among the lower classes.

However, does this make income either non-excludable or non-rival in consumption? Non-excludable requires that everyone be able to enjoy a product once it is produced. Partially, this is true of income redistribution. For example, Person A makes $300 thousand a year and Person B makes $100 thousand a year. Person A pays 50 percent income tax and Person B pay 25 percent income tax, a total of $175 thousand in taxes. If the government re-distributed this money equally - among all citizens - the definition of non-excludable would be met, however, income redistribution does not do this. Income would only be redistributed to citizens making less that $250 thousand a year.

Non-rival in consumption requires that one person's enjoyment does not interfere with another's consumption. Again, if the government redistributed income equally - among all citizens - the definition would be met because each citizen receives an equal share. In practice, income redistribution is not setup this way. Income is redistributed according to need. Citizens with lower incomes receive a larger share than citizens in higher income brackets.

Throughout history countries have not used income redistribution for public good. Instead, it has been used to provide "fairness". A quote from Karl Marx further explains this philosophy, "from each according to their ability, to each according to their needs" (Boortz, 2008). Inherently, this philosophy takes money from higher income earners and gives it to lower income earners.

By itself, income redistribution cannot be classified or excluded from being a public good. Meeting the definition of public good requires that no one be excluded from consuming the product and one person's enjoyment does not hinder consumption. Whether income redistribution meets the definition of a public good depends on implementation. Income redistribution could be a public good if every citizen receives an equal share. Income redistribution has not been used for equal redistribution but to take money from higher wage earners and give it to lower wage earners. While income redistribution could meet the definition of a public good, historically, implementation has precluded it from being classified a public good.

References

Deardorff, Alan. Deardorff's Glossary of International Economics. Retrieved November 28, 2008, from http://www-personal.umich.edu/~alandear/glossary/p.html.

Impomeni, Mark. Obama Explains "Spread the Wealth" Comment. Retrieved November 28, 2008, from http://news.aol.com/political-machine/2008/10/22/obama-explains-spread-the-wealth-comment/

Income Redistribution. BNET Business Dictionary. Retrieved November 28, 2008 from http://dictionary.bnet.com/definition/income+redistribution.html

Boortz, Neal. From Each According to Their Ability ... Retrieved November 30, 2008 from http://archive.newsmax.com/archives/articles/2002/2/5/154600.shtml