My colleague Martin Feldstein and Marion Valliant argue that states can’t really redistribute income at all, because wage rates respond quickly to changes in the tax rate. When the tax rates on low-income earners fall, their wage rates also drop, and when tax rates on high-income earners rise, their wages rise. These wage effects rapidly undo any attempt by the state government to create a fairer society.
This is assuming that "high-income earners" pass their tax increases on to those lower-income workers below them? But isn't there also a cost associated with passing that tax on? There seems to be something wrong with this idea. . ..