Why Do People Prefer Indirect Redistribution?

Ryan Avent on manufacturing ends up pondering a question I wonder about to—why is it that economic redistribution programs are more popular when they’re indirect and inefficient.

Consider the question of sales taxes on foreign-made paper clips, taxes that are levied at a rate of 100 percent or more. This policy appears to have succeeded in preventing the paper clip industry from migrating to Asia, and thus supports a modest number of paper clip manufacturing jobs. Plausibly, the people working in the paper clip industry are earning higher wages than they would absent this hefty sales tax on imported paper clips. Obviously, paper clips are not a large share of the economy so in total this costs the average American very little and also supports only a tiny number of jobs. But the basic principle is that you have a broad-based tax, and then you have a targeted transfer. This seems to be politically sustainable, and if I’m reading my polls correctly Americans are quite support of this sort of thing. We could, pretty easily, scale up the same basic principle by imposing a small federal retail sales tax on all purchases (whether paper clips or not, whether imported or not) and use the funds to finance a much more generous Earned Income Tax Credit. You’d have a broad based tax, and then targeted redistribution to people in need. There would be real costs, but you’d be supporting good jobs. And yet I suspect that this idea, if proposed, would be hideously unpopular.

People are so accustomed to public preference for indirect policies (CAFE standards vs gas tax, etc.) that it’s just become an unremarkable part of the background, but it’s really pretty strange. There are a lot of worthwhile social goals that people seem prepared to bear costs in order to advance. If they could be persuaded to support bearing those same costs in the most cost-effective way, we’d be making much more progress.