To some extent, undoubtely. Government is not always the problem, more often than not it is the solution. Of course, these soundbites and reckless over-simplifcations are quite useless. Rather public policy should be based on a pragmatic, case by case apporach. The question here is, do taxes and tranfers acheive their goal of alleviating poverty. From the answer we can infer whether or not they are a) desirable and b) an expansion should be considered.

Kenworthy (1999) found a significant difference between the pre-transfer, pre-tax and post-transfer, post-tax absolute poverty rates in sixteen affluent democracies. To facilitate a cross national comparison, Kenworthy used data from the Luxembourg Income Survey (LIS) and an absolute poverty threshold set at 40% of U.S. median household income. She used purchasing power parity rates from the OECD for currency conversion. Income figures were also adjusted for household size, with the standard equalization scale of 0.5 for each additional household member, obtained from the OECD as well. While pre-transfer poverty is caused a multitude of factors, including public policy, economic growth, demographics, etc..., the difference between pre-tax/transfer and post-tax/transfer poverty is the result of government intervention. Kenworthy found that the welfare state reduces absolute poverty anywhere between 40% and 90%. Using decommodification,[1] cash transfers and social wage[2] as proxies of welfare state extensiveness, Kenworthy found a considerable correlation between welfare state extensiveness and the post-tax/transfer poverty rate. According to her calculations, "the coefficients for each of the three alternative social-welfare policy extensiveness measures are negative and statistically significant... [suggesting] that social-welfare policies do help to reduce poverty" (p. 1129; emphasis in original).

Kenworthy used an absolute poverty threshold to address the libertarian argument that the welfare state increases absolute poverty by stalling growth, despite its success in reducing relative poverty. Bradley, Huber, Moller, Nielsen and Stephens (2003) conducted a similar study, but used a relative poverty threshold set at 50% of median household income of each respective country. Income data was also obtained from the LIS and adjusted for household size and purchasing power parity, using standard measurements from the OECD. While poverty reduction was not as great regarding relative poverty as absolute poverty, the study still found the welfare state and effective tool for poverty relief. The mean poverty reduction was 49%, ranging from 12.1% in the U.S. to 78.8% in Belgium. Bradley et al. concluded that, "the more generous the welfare state, the greater is the extent of poverty reduction. In addition, long-term incumbency of left parties affects poverty reduction positively by giving the tax and transfer system a particularly redistributive profile" (p. 44).

By reducing poverty, the welfare state also reduces inequality. Research by both Kenworthy and Bradley et al. unambiguously suggest that it moves a great share, in many developed countries the majority, of those with low incomes higher up on the income strata. Much of the welfare state is financed by a progressive taxation system and thus mainly relies on contribution form affluent members of society. Even in the U.S., which has a tax burden significantly below the average for a developed country, the income tax burden is distributed progressively. In 2005, the bottom 53% of taxpayers paid 9.3% of all income taxes, while the top 0.91% of taxpayers, who paid the top marginal tax rate of 35%, paid 32.4% of all income taxes. The top marginal rate by itself generated more then twice as much revenue as any other marginal rate (Bryan & Mudry, 2006). Not all taxes, however, are as progressive as the federal income tax. When state, local and other taxes are included the top 1% paid roughly 21% of all taxes (Miller, 2007). Overall, the share of income garnered by the top 1% is decreased from 20% before taxes to 14% after taxes (Aron-Dine & Sherman, 2007).[3]

These numbers need to be read with care, however. They do not indicate that the rich are taxed sufficiently. For a household in the top 0.1% with an income of $1.6 million to feel the pinch of taxation as hard as someone making $35,000, it will need to be taxed at a considerably higher rate - thus inevitably shouldering a greater share of the tax burden. Furthermore, the poor in the U.S. pay virtually no income tax, while the working and middle classes are taxed lightly (See Alperovitz, 2004). Suppose a society with high inequality, such as the U.S., decided not to tax anyone but those making at least $1 million per year. Now suppose the rate at which the rich are taxed is 1%. True, the rich in this fictional society are paying 100% of all income tax. Yet, as their seven-figure incomes are being taxes at just 1%, the injustices and inefficiencies outlined in section two will not be alleviated. The rich in the U.S. pay a larger share of the tax income tax burden because they enjoy much higher incomes than the bottom 99% and the working and middle classes are taxed very low rates. As I described in section two, the top 1% are still pulling ahead of the bottom 99% even in terms of after-tax income (see figure 2) and the Bush tax cuts resulted in an inefficient allocation of resources by lower the tax burden levied on the rich. The one thing one may infer from these statistics is that even in the U.S., the welfare state is financed at least partially through progressive taxation, i.e. the poor are being lifted out of poverty with resources coming from high income households. In sum, the welfare state does reduce inequality and thus the injustice and inefficiency that accompany inequality.

[1] Kenworthy uses the decommodification scale by Esping-Andersen (1990), which measures the extent to which an individual can sustain a decent standard of living when not working.

[2] In Kenworthy, "social wage" refers to "the percentage of former income that a median income worker will receive if she or he stops working" (p. 1126).

[3] it should be noted that 14% is still almost twice as large as the 7.5% of net income as the top 1% received in 1979.

Sources:

• Alperovitz, G. (July/August, 2004). The coming era of wealth taxation. In C. Sturr & R. Vasudevan (Eds.), Current economic issues: progressive perspectives from dollars & sense (pp. 213-217). Boston: Economic Affairs Bureau.
• Aron-Dine, A. & Sherman, A. (January 23, 2007). New CBO Data Show Income Inequality Continues to Widen: After-tax-income for Top 1 Percent Rose by $146,000 in 2004. Retrived April 25, 2008 from the Center on Budget Policy and Priorities: http://www.cbpp.org/1-23-07inc.htm
• Bradley, D., Huber, E., Moller, S., Nielsen, F. & Stephens, J. D. (2003). Determinants of relative poverty in advanced capitalist democracies. American Sociological Review, 68(1), 22-51. Retrieved April 26, 2008 from JSTOR: http://www.jstor.org/stable/3088901
• Bryan, J. & Mudry, K. (2006). Individual income tax rates and shares. Retrieved April 27, 2008 from the Internal Revenue Service: http://www.irs.gov/taxstats/indtaxstats/article/0,,id=129270,00.html
• Kenworthy, L. (1999). Do social-welfare policies reduce poverty? A cross-national assessment. Social Forces, 77(3), 1119-1139. Retrieved April 26, 2008 from JSTOR: http://www.jstor.org/stable/3005973
• Miller, J. (January/February, 2007). Mind-boggling inequality: Enough to make even Adam Smith worry. In C. Sturr & R. Vasudevan, Current economic issues: Progressive perspectives from Dollars & Sense. Boston: Economic Affairs Bureau.