Rich Man, Poor Man
Income Redistribution and the Welfare State
Two myths about the distribution of income comforted liberals during the 1950s. They believed that incomes were becoming steadily more equal, and that government spending programs uniformly accelerated that trend. Frederick Lewis Allen spoke for a self-satisfied New Deal generation when he said that “we had brought about a virtually automatic redistribution of income from the well-to-do to the less well-to-do”1 through the mechanism of the welfare state.
As the Fifties ended the first myth began to give way to evidence. Income distribution, it appeared, had barely changed since the war. The changes that did occur were at the expense of the poorest as well as the richest parts of the population, yielding a slight bulge around the middle classes. In 1947, the poorest 20 percent of the nation’s families shared only 5.1 percent of the nation’s income; by 1960, they had to make do with 4.9 percent.2 Between 1947 and 1960, the percentage of families earning less than one-half the median income—a good relative measure of poverty—increased from 18.9 percent to 20.3 percent.3
As liberals began to acknowledge the persistence of inequality in the private economy, they redoubled their faith in spending by “the public sector.” John Kenneth Galbraith’s 1958 book, The Affluent Society, summed up the postwar liberal strategy. Galbraith argued that inequality could not be attacked directly through a stiffer income tax. Most Americans, he observed were too prosperous to care very much about soaking the rich. Thus equality had faded as a political issue. It could be approached only indirectly, through a general expansion of public spending. The poor, Galbraith argued, “would be among the first beneficiaries of [government spending on] education, health, housing and other services….” Admittedly, an enlarged public sector would support itself in major part through regressive taxation, for example by hiking sales taxes. But that was no objection:
It will be argued that some people are still very poor. The sales tax, unlike the income tax, weighs heavily on the small consumption of such individuals. But if the income tax is unavailable or in service to other ends, the only alternative is to sacrifice social balance [between public and private spending]…. The modern liberal rallies to protect the poor from the taxes which, in the next generation, would help eliminate poverty.4
Galbraith’s ideology made virtuous what liberal politicians had already found necessary: a program which did not rely principally on the defunct Roosevelt coalition based on labor and the ethnic minorities. The defeat of national health insurance and the emasculation of public housing had by 1952 ended hope for a second New Deal. Liberals could succeed only with new measures and new partners. Within a few years the transition was accomplished. Labor and the academic liberals joined with downtown business interests in sponsoring urban renewal; with auto manufacturers and highway contractors in supporting vast road projects; with suburban legislators in promoting state-supported higher education.
But the result was not a redistribution of income. Galbraith had…
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