Shattered Consensus. James Piereson

rising costs of government and to fulfill the aspirations of an upwardly mobile population. Economic stagnation, if it continues as it has since 2000, could easily bring about the upheaval that was forecast in Shattered Consensus.

      Unfortunately, neither of the major political parties is now offering a plausible set of policies to deal with the “growth crisis” threatening the stability of the American polity. While Trump is on the right track with his proposals for reductions in taxes, spending, and regulations, his proposals to protect the U.S. economy from foreign competition would do more to impede than to promote economic growth. Still, the policies he recommends are far superior in this regard to those on offer from the Democrats.

      Barack Obama did little during his eight years in office to address the problems of stagnation and the costs of the welfare state; in many ways, he made those problems worse by pushing an expensive new health-care program (passed on a party-line vote) and nearly doubling the federal debt from $10.6 trillion in 2009 to about $20 trillion by the end of 2016, with very little to show for all the new spending. Hillary Clinton, prodded to the left by Senators Bernie Sanders and Elizabeth Warren, promises more of the same, with an added emphasis on higher taxes for the wealthy as a means of dealing with income inequality. The 2016 Democratic Party Platform contains a laundry list of proposals for higher taxes, trade protectionism, universal health care, subsidies for “clean energy,” free college tuition, an increase in the minimum wage, added regulations for banks, and new rules to make it easier for public and private sector unions to organize. Redistribution, plus a heavy dose of regulation, seems to be the Democrats’ answer to America’s growth crisis.

      There are at least three problems with the progressive focus on redistribution: it does not promote growth; it does not reduce inequality; and the public does not favor it.

      Public opinion polls over the years have consistently shown that voters overwhelmingly reject programs of redistribution, in favor of policies designed to promote overall economic growth and job creation. More recent polls suggest that while voters are increasingly concerned about inequality and question the high salaries paid to executives and bankers, they nevertheless reject redistributive remedies such as higher taxes on the wealthy. According to these studies, voters reject redistributive policies because they do not believe the government is capable of implementing them in effective ways. While voters are worried about inequality, they are far more concerned with economic growth, and they are skeptical of the capacity of governments to do anything about inequality without making matters worse for everyone.

      Here, as is often the case, there is more wisdom in the public’s outlook than in the campaign speeches of Democratic presidential candidates or in the books and opinion columns of progressive economists. Leaving aside the morality of redistribution, the progressive case is based upon a significant fallacy: it assumes that the U.S. government is actually capable of redistributing income from the wealthy to the poor. For reasons of policy, tradition, and institutional design, this is not so. Whatever one may think of inequality, redistributive fiscal policies are unlikely to do much to reduce it, but they will place burdens on businesses and consumers that retard economic growth.

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      One need only look at the effects of federal tax and spending programs over the past three and a half decades to see the limitations of the redistributive agenda. The chart to the right, based upon data compiled by the Congressional Budget Office, displays the national shares of before- and after-tax income for the top 1 percent and the top 10 percent of the income distribution from 1979 through 2011, along with the corresponding figures for the bottom 20 percent. For purposes of this study, the CBO defined “income” as market income plus government transfers, including cash payments along with the value of in-kind services and payments such as health care (Medicare and Medicaid) and food stamps. The CBO treated tax credits, including cash refunds on the payroll tax for low-income families, as a tax variable, although for budgetary purposes those credits are accounted as spending. The chart represents a general portrait of the degree to which federal tax policies redistribute income from the wealthiest to the poorest groups and to households in between.

      The chart illustrates two broad points: First, the wealthiest groups gradually increased their share of national income (both pre- and after-tax) over this period of thirty-plus years. Second, federal tax policies had little effect on the overall distribution of income.

      Across this period, the top 1 percent of the income distribution nearly doubled its share of pre-tax national income, from about 9 percent in 1979 to more than 18 percent in 2007 and 2008, before it fell back after the financial crisis to 15 percent in 2010 and 2011. (Some studies suggest that by 2014 it was back up to 18 percent.) Meanwhile, the top 10 percent increased its share by a third, from about 30 percent in 1979 to 40 percent in 2007 and 2008, before it fell to 37 percent in 2011. The bottom quintile maintained a fairly constant share of national income through the period.

      Many people would be surprised to learn that the federal fiscal system does not do more to reduce inequalities in income arising from the free-market system. Yet there are perfectly obvious reasons—on both the tax and the spending side—why redistribution does not succeed in the American system, and probably cannot be made to succeed.

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      First, on the tax side: The income tax yields revenues to the government through two main sources: (1) progressive taxes on ordinary income (salaries and wages), and (2) taxes on capital gains, which are taxed at somewhat lower rates to encourage investment. For most of the period from 1979 to 2011, taxes on capital gains yielded less than 10 percent of total income taxes and about 4 percent of total federal revenues. In terms of the income tax, most of the action is in taxes on ordinary income.

      The highest marginal income tax rate oscillated up and down throughout this period, beginning at 70 percent during the Carter presidency, falling to 50 percent and then to 28 percent and up slightly to 31 percent in the Reagan/Bush years, then rising to 39.6 percent in the 1990s under the Clinton presidency, before going down again to 35 percent from 2003 to 2011. (It is now back up to 39.6 percent.) The highest rate on capital gains moved within a narrower band, beginning at 28 percent in 1979 and falling as low as 15 percent from 2005 to 2011. (The highest rate is currently 23.8 percent.)

      Throughout this period, the top 1 percent of the income distribution lost between 1 and 2 percent of the income share to taxes, regardless of the tax rates. In 1980, that group claimed 9 percent of before-tax income and 8 percent of after-tax income; in 1990 the figures were 12 percent and 11 percent; and in 2010, 15 percent and 13 percent. The top 10 percent of the income distribution generally lost more of its income share to taxes, between 2 and 4 percent, probably because those households take a greater share of their income in salaries rather than capital gains. At the other end, the lowest income quintile gained very little (about 1 percent on average) in the income share due to the progressive tax system. In 2011, for example, the poorest 20 percent of households received 5 percent of pre-tax national income and 6 percent of after-tax income.

      Many in the redistributionist camp attribute this pattern to a lack of progressivity in the income tax system, an explanation that overlooks the fact that income taxes in the United States are at least as progressive as those in many other developed countries. The highest marginal rate in the United States was 35 percent from 2003 to 2012 and today is 39.6 percent for top earners, a rate not far out of line with those of America’s chief competitors, including Germany, France, the United Kingdom, and Japan, where the highest marginal rates range between 40 and 46 percent.

      A study published by the Organization for Economic Cooperation and Development in 2008 found that the United States actually had the most progressive income tax system among all twenty-four OECD countries, measured in terms of the share of the tax burden paid by the wealthiest households. According to the Congressional Budget Office, the top 1 percent of earners paid 39 percent of the personal income taxes in 2010 while claiming 15 percent of before-tax income, and the top 20 percent of earners paid 93 percent of federal income taxes in 2010 but claimed just 52 percent of before-tax income. Meanwhile, the bottom 40 percent of the income distribution paid zero net income taxes. For all practical purposes, those in the highest brackets