Spread The Wealth? What's New?

In the last lap of his campaign, John McCain is claiming that Barack Obama "believes in redistributing wealth." The problem with this charge is not that it's untrue. It's that McCain—along with most of his supporters—favors redistribution, too. Government redistributes wealth to some extent by its very existence, since it's impractical for citizens to pay for or benefit from it in equal proportion, even if that were desirable. So long as you have a system of taxation and spending on public goods like education and roads, some people will do better out of the bargain than others. The real questions are whether public policy consciously tries to affect the distribution of wealth, and how much it tries to change it and in what direction.

Redistribution has a "from" side (taxation) and a "to" side (spending). On the "from" side, the notion that government should use taxation to increase rather than decrease equality is hardly Marxist. In "The Wealth of Nations," Adam Smith begins his section on taxation with the following maxim: "The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities." To ask otherwise, Smith writes, would be obviously unfair.

Until the 20th century, the bulk of government revenues came from tariffs, which are regressive, meaning that they redistribute income away from the poor. The progressive principle was enshrined in American practice with the arrival of the federal income and inheritance taxes. The champion of these policies? None other than John McCain's hero, Teddy Roosevelt. We got progressive income taxes with the passage of the 16th Amendment in 1913. The federal estate tax we have today came in 1916.

McCain is a consistent adherent to his hero's principles. Unlike George W. Bush, McCain supports the retention of an estate tax (he favors reducing it to 15 percent on estates above $5 million). McCain opposes the flat tax, which would repudiate progressivity (though with a $46,000 exemption, it would still redistribute income). Some of us still remember the John McCain who opposed Bush's 2001 tax cut, saying it was unfairly tilted toward the rich.

On the "to" side of the ledger, large-scale redistributive policies owe their existence to the other President Roosevelt. The biggest and most important of these is Social Security. FDR understood that an income-support program that was too explicitly redistributionist would be unlikely to survive politically, which is why everyone who works and pays into the system has a right to benefits. But the Social Security Administration does quietly shift money from relatively richer to relatively poorer—even if some recent research indicates it does so less than intended, largely because poor people have shorter life expectancies.

Curiously, the most prominent proponents of more-aggressive wealth redistribution have been Robin Hoods of the right. Milton Friedman is considered the father of the negative income tax, a 1960s-era proposal to simply give cash to the poor. Richard Nixon pitched a version of this plan in 1973. The idea was that writing checks would be preferable to more bureaucratic programs like welfare. Our most explicit redistributive program today is probably the earned-income tax credit, which supplements the incomes of people who work but don't earn enough to escape poverty on their own. Gerald Ford signed this bill into law and Ronald Reagan greatly expanded it.

McCain has long-favored the EITC, call-ing it "a much-needed tax credit for working Americans." McCain doesn't support the repeal of Social Security or Medicare, or a raft of other wealth-spreading programs like food stamps. And he's got redistributive measures of his own invention, too, such as a tax credit to help people with lower incomes buy health insurance.

McCain might respond that it's not the principle of redistribution that makes Obama's policies objectionable, but the extent of them. Socialistic Sweden, with its generous benefits and a government consuming about 55 percent of GDP, exists on the same continuum with the mildly distributive United States, where you can't get by on welfare payments and total government spending is in the range of 30 percent of GDP. McCain's attack implies that an Obama presidency would lead us toward the Swedish model.

There's little in Obama's background or writings to suggest he favors more-ambitious redistributive policies. His most expensive new social program is an expansion of health-care coverage that would not create a universal entitlement (as many Democrats want to do) and which has been credibly priced at less, or only slightly more, than McCain's plan. There's little reason to think that Obama would depart from the bipartisan consensus that has favored federal spending at approximately the same level for the past 40 years.

What has changed in that period is the way the market has distributed wealth. Since the 1970s, income inequality in the United States has increased dramatically. Obama, like a lot of fellow liberals, would like to find ways to reverse that trend without diminishing overall economic growth. The old John McCain worried about that problem, too. We may see that guy again, after the election.