“Isnt it lawful for me to do what I want to with what I own?” Matt 20:1-16
A reliable distinction between Conservative and Liberals is the way they view the purposes of taxation. While it is clear that Liberals are more expansive in their view of the ways that taxes should be used for public welfare programs, Liberals also view taxes as a redistributionist tool even if its use for this purpose reduces the level of taxes available.
H. L. Menchan once defined Puritanism as “The haunting fear that someone, somewhere, may be happy.” By analogy, please permit the observation that some Liberals scowl fretfully at the world with the apprehension that someone, somewhere, may have accumulated what Liberals judge a disproportionate amount of money.
With such an attitude, one purpose of taxation becomes punitive. It is just unfair that some people have very much more money than others. By definition, this money could not have been accumulated entirely fairly. Even people who make money in direct proportion to a conspicuous talent, like a professional athlete or an entertainer are viewed with suspicion. The fact that some of these people become extraordinarily wealthy is not evidence of extraordinary talent, but a economic system that unfairly rewards such talent.
All would agree that taxes are needed and in general it is better demand more taxes from those with more resources. Bank robber Willie Sutton when asked why he robbed banks, is reputed to have replied “because that’s where the money is.” Similarly, government taxes the more affluent because that is where the money is. Less cynically, the affluent can be said to have benefited more from the social arrangements under which they have prospered. Hence, they have a greater obligation for its maintenance.
However, the perpetual desire to punish the affluent can sometimes create a system where ironically the affluent less pay a smaller fraction of federal taxes, despite more progressive rates. In a recent article, Stephen Moore of the Wall Street Journal cites a study by Columbia University economist Glenn Hubbard. In President Carter’s administration, the highest marginal tax rate was 70% (twice the current 35%). However, the top 1% paid only 16.7% of all federal income taxes. At the current 35% highest marginal rate, the top 1% actually pay more than twice the fraction of total federal income taxes (39%) than they did in the 1970’s. Hence, the federal income tax system became more progressive with lower marginal rates.
How can this be? The answer is simple. Capital and the wealthy who own capital have many options available to them. They can decide not to take the risks necessary to earn some additional income because the rewards are too small. They can shield themselves from taxes by finding tax loopholes, like the simple tax-free municipal bonds. They can move themselves and money overseas. Indeed, it is now far easier for capital to migrate to those regions of the world where wealth accumulation is treated more favorably than it was in the 197os.
Conservatives and Liberals rightly view taxation as a necessary expense for the functioning of government, though clearly Conservatives and Liberals differ on the proper role of government. However, it is simply wrong-headed and counterproductive for Liberals to seek to increase tax rates beyond the point where revenues go down and the federal tax system becomes less progressive to satisfy their congenital anger at the affluent.
This entry was posted on Sunday, July 20th, 2008 at 9:33 am and is filed under Economics, Politics, Social Commentary. You can follow any responses to this entry through the RSS 2.0 feed.
You can leave a response, or trackback from your own site.
Goal of Taxation
A reliable distinction between Conservative and Liberals is the way they view the purposes of taxation. While it is clear that Liberals are more expansive in their view of the ways that taxes should be used for public welfare programs, Liberals also view taxes as a redistributionist tool even if its use for this purpose reduces the level of taxes available.
H. L. Menchan once defined Puritanism as “The haunting fear that someone, somewhere, may be happy.” By analogy, please permit the observation that some Liberals scowl fretfully at the world with the apprehension that someone, somewhere, may have accumulated what Liberals judge a disproportionate amount of money.
With such an attitude, one purpose of taxation becomes punitive. It is just unfair that some people have very much more money than others. By definition, this money could not have been accumulated entirely fairly. Even people who make money in direct proportion to a conspicuous talent, like a professional athlete or an entertainer are viewed with suspicion. The fact that some of these people become extraordinarily wealthy is not evidence of extraordinary talent, but a economic system that unfairly rewards such talent.
All would agree that taxes are needed and in general it is better demand more taxes from those with more resources. Bank robber Willie Sutton when asked why he robbed banks, is reputed to have replied “because that’s where the money is.” Similarly, government taxes the more affluent because that is where the money is. Less cynically, the affluent can be said to have benefited more from the social arrangements under which they have prospered. Hence, they have a greater obligation for its maintenance.
However, the perpetual desire to punish the affluent can sometimes create a system where ironically the affluent less pay a smaller fraction of federal taxes, despite more progressive rates. In a recent article, Stephen Moore of the Wall Street Journal cites a study by Columbia University economist Glenn Hubbard. In President Carter’s administration, the highest marginal tax rate was 70% (twice the current 35%). However, the top 1% paid only 16.7% of all federal income taxes. At the current 35% highest marginal rate, the top 1% actually pay more than twice the fraction of total federal income taxes (39%) than they did in the 1970’s. Hence, the federal income tax system became more progressive with lower marginal rates.
How can this be? The answer is simple. Capital and the wealthy who own capital have many options available to them. They can decide not to take the risks necessary to earn some additional income because the rewards are too small. They can shield themselves from taxes by finding tax loopholes, like the simple tax-free municipal bonds. They can move themselves and money overseas. Indeed, it is now far easier for capital to migrate to those regions of the world where wealth accumulation is treated more favorably than it was in the 197os.
Conservatives and Liberals rightly view taxation as a necessary expense for the functioning of government, though clearly Conservatives and Liberals differ on the proper role of government. However, it is simply wrong-headed and counterproductive for Liberals to seek to increase tax rates beyond the point where revenues go down and the federal tax system becomes less progressive to satisfy their congenital anger at the affluent.
This entry was posted on Sunday, July 20th, 2008 at 9:33 am and is filed under Economics, Politics, Social Commentary. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.