Redistribution lowers standard of living
The arguments that support progressive taxation and the redistribution of income can seem convincing to even the most logical person. Sometimes an economist will justify heavy marginal income taxes on the rich by showing diminishing marginal utility curves-the last dollar owned by Bill Gates being almost infinetly less valuable [to him] compared to the value curve of a poor man with 10 dollars.
Imagine that Obama wanted lower class Americans to have 'free' health care tomorrow. Say that the people that would fall under this government medical program would be anyone with a net family of 4 income of $30,000 or less. To finance the scheme, the middle class would be taxed-the wealth redistributed, so anyone in a net family of 4 income of $40,000-150,000 would be subject to aggressive progressive taxation to fund a multi billion dollar program. Certainly the middle class could concievably afford the redistribution program, and still afford health care for themselves. But, the middle class would need to lower their standard of living- the cost for lifting up the lower class. Middle class families would cut out retirement savings, vacations, higher education, cell phones, designer clothing, eating out, foreign cars yada yada yada. Keep in mind that their marginal utility curves for each of their dollars spent, would be comparable to Bill Gates and the man with 10 dollars, albeit with moderation.
More realistically the government taxes the producers and wealthy to redistribute, that too has consequences of lowering the standard of living for everyone. The fallacy of redistributive economics, is that the economy is a zero sum game. Progressives believe that when a wealthy person has 1 million in the bank, thats 1 million less for everyone else. Not true. 1 million in the bank is from purposeful action, and rational allocation of money resources. They think that taking 10 dollars from Warren Buffet and giving to a single mother is justified since in the market economy- its a zero sum game anyway- so why not do "what is fair, pragmatic, socially conscience" etc?.?.?
The government taxes the excess and surplus of the wealthy. It taxes the millions of dollars, that supposedly the CEO's and hedge fund managers don't need, and a poor person needs more. Believing that redistribution can benefit society (and synthetically, individuals in society), central planning dictates that allocating resources by legislation can improve general welfare. Keep in mind one of the axioms of economics, that in consenting capitalist acts both sides in a transaction stand to benefit- as they have dual value scales. If income is allowed to stay in private hands, the only way the income can be put to use, is if society benefits (again, individuals withing society). This is why the market is the best program of social welfare.