The Difference Between Economic Growth & Income Redistribution

by Chris Blank, studioD

In the wake of the unprecedented downgrade of the credit rating of the United States from AAA to AA+ by rating agency Standard and Poor's in August 2011, lawmakers in Washington and Americans across the country debate how to approach the country's economic woes. A 2008 Gallup poll showed that by 84 percent of Americans surveyed stated that the country should concentrate on improving the overall economy rather than attempt to redistribute wealth. However, political and economic conditions can severely limit the likelihood of large scale economic growth, according to a July 2011 article in "The New York Times."

Income Redistribution

Karl Marx stated that the goal of socialism was to distribute the wealth of the state "from each according to his abilities, to each according to his needs" so that no one was especially poor, but no one was especially rich, either. Income redistribution takes place through direct transfers like taxes and social welfare benefits. The indirect benefits of income redistribution manifest themselves in services provided to all citizens by the government, such as subsidized health care, utility services, police officers and firefighters -- all funded through taxes.

Economic Growth

Economic growth occurs when the output of the country, measured by the Gross National Product (GNP), increases in a year on year comparison with the previous year. Increases in literacy levels, advances in innovation and capital stock increases are among the factors that traditionally drive economic growth. American enjoyed a prolonged period of economic growth from the post World War II period through the 1960s. Another period of prosperity occurred during the 1990s, along with extremely rapid economic growth that resulted in a budget surplus by the end of the decade.

Recessionary Spending and Cuts

Prevailing economic wisdom advises an increase in government spending to provide a catalyst for economic growth during periods of economic downturn. During the Great Depression, when Washington instituted severe budget cuts, the already weak economy plunged further into depression. Recovery only occurred after World War II, fueled largely by wartime spending and the New Deal, Franklin Delano Roosevelt's version of a budget stimulus plan. Sixty years later, the economy faced the prospect of a double dip recession, while lawmakers in Washington wrangled over spending cuts and resisted calls to raise tax revenues. Meanwhile, many economists warned that austerity measures were just what the country didn't need, according to "The New York Times."

Tax Cuts and Economic Growth

The Bush tax cuts first took effect in 2001, with another round of cuts in 2003. Contrary to the insistence of then-President Bush and other supporters, the tax cuts did not generate significant economic growth, "The Washington Post" reports. According to the Congressional Budget Office, the Bush tax cuts average an increase of only 10 to 40 percent of Gross Domestic Product (GDP) for every dollar, mostly because the tax cuts favor the wealthy, who spend a lower percentage of their income than people in lower income brackets. If anything, the Bush tax cuts have contributed to distributing more income and wealth to the upper echelons of American society, according to G. William Domhoff of the University of California at Santa Cruz.

About the Author

Chris Blank is an independent writer and research consultant with more than 20 years' experience. Blank specializes in social policy analysis, current events, popular culture and travel. His work has appeared both online and in print publications. He holds a Master of Arts in sociology and a Juris Doctor.

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