The Inanity of the Welfare State
By Bryan Caplan
When most people stare at this table (courtesy of Greg Mankiw), they see strong evidence that the U.S. tax system is highly progressive.
If you calmly peruse the table, however, a stranger pattern emerges – a pattern neither liberals nor conservatives will expect. Look closely. While taxes are highly progressive, transfers have an upside-down U-shape. Households in the middle quintile get the most money. The richest households actually get more money than the poorest. Think about how many times you’ve heard about government’s great mission to “help the poor.” Could there be any clearer evidence that such claims are mythology?*
If government really wanted to help the poor, it wouldn’t tax everyone to fund everyone. It would raise only taxes required to help the genuinely poor, then say “mission accomplished.” Relative to the status quo, that means big tax cuts and stringent means-testing. Picture a world where the lowest quintile continues to receive whatever it gets now, all other quintiles get zero, and the government refunds all the savings with tax cuts. Then ask yourself, “Why not?”
* Yes, I know that rich households have more people, but the basic pattern remains.