Ever since that morning when the “Joe the Plumber” story broke and Americans saw the video showing candidate Barack Obama uncharacteristically allowing his inner socialist to slip out for a few seconds I have noticed that the media has suddenly become very concerned with the hard definition of Socialism. Since they did not like The One being criticized, particularly with an epithet like the S-word, they pounced on it every time the McCain campaign compared Obama’s slipped words to Socialism. In retrospect it seems obvious that the proper response to those transparent partisans posing as journalists was to point out that his positions are socialistic even if they do not precisely match the writings of some unhappy French guys like Leroux or Reybaud from the nineteenth century. But the now legendary interference-running by the mainstream media for their candidate of choice got me thinking about our tax system and where I draw that line.
Before we do go any further in this discussion, let’s define some terms. Starting about the time that Mr. Obama spoke of “spreading the wealth,” his supporters both inside and outside of the media adopted an often successful tactic of responding to the socialist label with an always patronizing dismissal of the notion, going into a hair-splitting definition of the word in an attempt to obfuscate the larger point. Therefore, since the use of the word socialism is so often met by an intentionally tangential debate about strict definitions, I find it useful to use another term in its place. Let’s dispense with the debate about one particular flavor called socialism but instead focus on the umbrella philosophy of collectivism that also includes its cousins of Marxism, Maoism, communism, and fascism. But exactly where is the line at which point the social contract of funding base common needs crosses over into collectivism?
I think that most reasonable people would agree that we need taxation at some level in order to be able to sustain a certain level of common government services and functions; the basic infrastructure that all of us use. Things like the interstate system or the military come to mind, as well as more immediate examples like the police and firefighters. I know that purist libertarians will say that even the roads should be privately built and maintained, though I was never able to go that far even back when I was an uppercase-L Libertarian, but let’s just accept that at some point there are legitimate roles for government and that those commonly useful actions must be funded in some way.
The basic idea of a straight (flat) income tax is to fund things in a way that hits the lower earning people a little more lightly than the higher-earning people, and most people seem to be okay with that, though I think that there are often some implicit assumptions in that thinking that often prove false, as I will discuss in a moment. For our first example, if the income tax is a flat 15 percent, then the young person earning $20K/yr pays $3000 in income taxes and will likely receive a refund check if withholding is a part of the tax. In that same 15 percent tax scenario, the builder who made $200K last year would pay $30,000 in income taxes and the CEO who made a million pays $150K in taxes. It is the same percentage but obviously a higher dollar amount based upon higher earnings. Here is where I would like to make one point that I think is often missed. We are already crossing into collectivism here even though we are still discussing a straight, flat income tax. Remember that when we talk of genuinely common things provided by government, things like the FAA/FBI/FCC/FDA/USDA/EPA/etc (it goes on forever), these things are being provided pretty much equally to each of our example taxpayers. Yet when the young person pays a mere three grand for these common services while the builder and CEO pay 30K and 150K respectively, it already seems like this lower earner is getting a great deal to me. As I hinted at above, I would speculate that a lot of taxpayers can accept this arrangement because they assume that the people getting the tax break are either young and just starting out (and likely to pay much more in taxes over their lifetime) or old and on a fixed income (having paid a lot of taxes already). But I think that a lot of compassionate people would feel differently if they knew that in many cases the people were simply being subsidized by the rest of us for large parts of their entire lives. I will not dwell on this point, but I do want to stress that even though a flat tax feels like a very fair model (and is infinitely more so than our current tax code) it already skews the bill-paying towards the more productive people in society who in most cases are not getting anything more for their money.
On that note, a friend of mine made an interesting devil’s-advocate counter argument that we should look at it more like insurance. His analogy is that just like people purchasing insurance pay higher premiums for insured items of higher value, the higher earners have more possessions and more at stake, and therefore it would then make sense for them to pay higher taxes for all of this infrastructure and stability provided by the government. However, even if you accept my friend’s position you have to admit that to a large extent the flat income tax already accomplishes that, as my example numbers demonstrated. Moreover, you could easily argue that the higher funding requirements should only apply to funding those parts of government that directly protect our possessions, like the police and firefighters; I am hard pressed to see how wealthy Americans get more out of the interstate system or the FCC, for example.
That flat income tax approach, though it comes up from time to time during some political cycles, should not be confused with what we have in the United States. In America we have what people like to call a progressive income tax, which means that the tax rate itself is increased based upon the amount of income. [This gives me the opportunity to make the point that you should always be exceptionally wary when someone uses the self-congratulatory word ‘progressive’ as a complimentary adjective as their likely intended “progress” is toward a more collectivistic society] Under this nice sounding tax (after all, who wants to be against progress?) the young person still pays 15 percent, or that same $3000, but the builder is in a higher tax bracket and pays 28 percent, or a much higher $56,000! Furthermore, the CEO who under the flat tax paid $150K in taxes finds himself in the 31 percent tax bracket and now pays a whopping $310,000 in taxes. Of course, Congress has added in a lot of deductions and loopholes and write-offs that allow people to end up paying a lower effective tax rate, but the point holds. What the progressive income tax adds is something subtle and insidious; once you start adjusting the rates paid based upon income level you are starting to decide how much people need and should be allowed to keep. That is a dangerous step that once crossed leads to a complete loss of any objective moral compass.
Four types of taxpayers
I would like to break Americans up into four groups based upon their role as taxpayers, as I think that it will help provide some clarity in discussing the truth about our system of taxation.
First, let’s start at the top. The people who make the most money pay the most in taxes, and as I demonstrated above they are not getting any more services from the government in exchange for this significantly higher tax burden; these taxpayers are the Cash Cows. Often denigrated and used in class warfare rhetoric, these people comprise the bulk of the investment class – the people who create jobs for the rest of the people. While I do not want to limit the Cash Cow label to this highest group, it is repellant to me that the top one percent of earners in America pays over 40 percent of the federal income tax burden. That is a higher share than is paid by the bottom 95 percent! These people are often despised and envied, but they are a big part of the engine of our economy.
The Regular Joe Taxpayer is the person who is always a net taxpayer. By my definition this is the bulk of what we would call the middle class. The best way to look at these people is that they are paying their fair share of the tax burden, roughly paying into the system enough for their fair share of the common services. Unlike the Cash Cows, these people are getting a fair shake in terms of their tax burden, but unlike the remaining two groups, they do not make other people subsidize their lifestyles.
The next group is comprised of people who are non-taxpayers. At tax time their income gets offset by convoluted deductions and loopholes, and they end up with a net tax payment of zero, likely getting a refund of the overpaid income taxes withheld during the year. However, to be in this group these people also must not live off of the rest of us via government redistribution programs. Since they are getting all of the common services and infrastructure that the top two groups are funding they are rightly called the Free Ride group.
The last group is the Societal Parasites – these people are a big tick on the neck of productive America. I can make the argument that they should lose the right to vote given that they will never vote for fiscal responsibility since they are not funding anything.
Even at this point, with our [allegedly] Progressive income tax, you could still argue that we have not taken a hard left onto Socialist Parkway, but we are surely slowing down with that left blinker flashing, particularly with a certain percentage of our people paying nothing into the system. However, we undeniably cross the line into socialistic when we set the system up with fake tax breaks and credits that end up with government checks going to people who pay zero in net income taxes. This is not the typical (and all too often ignorantly happy) “I got money back” refund of overpaid withholding taxes with which most of us are familiar but instead a check with real dollars that was taken from some other taxpayer who had a better year than the person who used government to take another’s property. Though arguments can be made that a “progressive” income tax is collectivistic in and of itself, once you start shifting money from one group to another you have undeniably crossed a line. Redistribution of wealth is collectivism. When one individual can use the government to take the property of another individual we have crossed a moral line after which there is no more moral compass. The argument becomes one simply of degree.
According to the IRS’ own numbers, the bottom 50 percent of taxpayers pay only 3 percent of the income taxes, and the bottom 40 percent pays nothing – in fact they are actually paying a negative number as they are being paid for being unsuccessful. How can a system where almost half of the people pay nothing towards the cost of things not be considered collectivist? Note that this is well before one ever considers a new health care entitlement.
I think that it is worth noting that since it is completely based upon income, you can end up with people who have made a fortune and are now living off of it paying nothing into the system. How much do George Soros or Ted Kennedy or some empty-headed Hollywood star care how much income taxes increase? They are good to go, thank you very much. It insults my intelligence when I see their constant attempts to take some high morals approach when they claim that they would be okay with paying higher taxes.
The Immorality of Collectivism
I mentioned earlier that I believe collectivism to be inherently immoral regardless of the results of an implementation of that system. Churchill once said that “the inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of misery.” In practice these results have proven to be true time and time again. To Churchill’s first point, we will always have an unequal sharing of “blessings” when those blessings are based upon a free market meritocratic system, but we also always have incredible opportunity to better ourselves. But Churchill’s second point properly points out that the results of socialism are better for a few people at the expense of everyone else. In this sense collectivism is immoral because it turns the entire system upside down, structuring things to be best for and most conducive to the needs of the least productive, least successful, and all too often least ambitious among us. Often lost in the debate is the sad fact that often the mere reality of government involvement results in a worse situation for all involved, including the unavoidable creation of less ambitious people with no incentive to work harder.
Socialism is immoral because at its core, once you strip away the camouflage of false compassion, it requires an acceptance that the government owns you, that when the rubber hits the road you are simply a number, and that if you are more productive than most other people you will be regarded as a cash cow to be milked for what some group of statists considers The Common Good. You can dress that up in the “party dress” of alleged compassion but it remains un-American and immoral.