“You cannot bring prosperity by discouraging thrift. You cannot help small men by tearing down big men. You cannot strengthen the weak by weakening the strong. You cannot lift the wage earner by pulling down the wage payer. You cannot help the poor man by destroying the rich.” – Rev. William John Henry Boetcker
In part one of my series on Bernie Sanders and Democratic Socialism, I dispelled the myth that business, as well as those considered affluent, are the acting parties behind inequitable distribution of wealth. Instead, I showed that it is the federal government–the entity that draws the parameters of the game itself–that is responsible for wealth inequity.
The point was to show that blame must not be placed where it isn’t due.
To grapple with any problem, one must first have an accurate understanding of how the problem came to be. Given this, I came to the conclusion that asking the government to add more rules to an already overburdened game of which they were the creators is backward, and even dangerous.
In part two, I intend to go further, answering questions necessarily brought about by the unpacking I did in part one.
In reaction to a system in which all loopholes are eliminated, and every single person and business pays the same percentage in taxes, many Democratic Socialists will double down, insisting that those who make more money–from corporations to individuals–should still pay more in taxes. This is known as a progressive tax system. In such a system, an average middle-class person would pay maybe 10% in taxes, while someone making $10 million a year would pay more, perhaps 45%.
This is viewed as equitable. If you have more, you should pay more. This is inherently unfair, however, because it penalizes success, and demands the answer to an unanswerable question: “How much is fair?”
How much is fair? Some say 45%, some say 50%, some say 90%. In an interview with CNBC’s John Harwood, Bernie Sanders himself said that a 90% tax rate isn’t out of the question.
Speaking of the period during the Dwight Eisenhower administration when top marginal tax rates were 90%, Harwood said:
“When you think about 90 percent, you don’t think that’s obviously too high.”
“No. What I think we’ve seen, and what frightens me again, when you have the top one-tenth of 1 percent owning almost as much wealth as the bottom 90 percent. Does anybody think that that is the kind of economy this country should have? Do we think it’s moral? We have people working one job, they’re working two jobs, they’re working three jobs. People scared to death about what happens tomorrow. Half the people in America have less than $10,000 in savings.”
To Sanders–and many Democratic Socialists like himself–no tax rate is too high for “the rich” so long as those who are less wealthy are receiving a portion of the money taken from those who are more wealthy. Basically, Robin Hood.
But again, this forces the question: “How much is fair?” And it begs two additional questions: “Who is wealthy?” and “Who defines what is considered wealthy?”
For some, “wealthy” is anyone making more than one million dollars annually. For others, it’s those making as little as $100,000 annually. It’s entirely subjective. So, to accomplish the goal of wealth redistribution, a Democratic Socialist must first define who is wealthy. This is fundamentally unfair. Who decides? The government? The people? It’s nebulous, and impossible, given the panoply of opinions that naturally arise when many individuals are involved in a subjective decision.
But let’s say that “too wealthy” is officially defined as those making $100,000 or more a year. What are the possible ramifications of such a definition? Above all, it tells people that if you cross the $100,000 boundary, more will be taken from you.
This disincentivizes hard work and investment–often investment into small businesses, which make up approximately 64% of net new private-sector jobs, according to the SBA.
Everyone works differently. There are those among us for whom work is more important. These people may work 50 or 60 hours a week. They are putting in the hours, and because of that dedication to their job, are accruing more wealth. Regardless of salary, those who work more gain more. However, if someone is told that working longer hours will cause the government to essentially penalize them by taking more money from their wallet, they will work less. It’s human nature.
Less money leads to less investment. Less investment leads to fewer employment opportunities for you. Although progressive taxation hits the wealthy directly, the by-product of such a system trickles down to the less wealthy.
A desire for profit drives work ethic. When the promise of profit is taken away, one loses incentive, and productivity falls.
Think about your own life. What drives you to go to work every day? Generally speaking, it’s not a love of work, but a desire for profit. If your employer slashed your pay by half, would your work ethic be as strong? If you’re honest, you’ll answer “No.”
Economist and professor at George Mason University Walter Williams explains the profit motive brilliantly and succinctly in the following video:
A progressive income tax is a burden on incentive, and therefore investment, and therefore business, and therefore opportunities for individuals in all income brackets.
So we’re back to square one. What is fair? The only equitable means by which we can tax individuals and businesses is by flat percentage. With a flat tax, no one pays more or less based on what they’ve earned, no one is the official arbiter of how wealthy is “too wealthy,” and no one is more or less incentivized to work because of their share of the tax burden.
So that’s cleared up, but I still haven’t addressed the question I brought up in part one. Shouldn’t those who make more feel obligated to subsidize those who make less? Shouldn’t the 12-year-old who got the candy because of his inherent advantages be obligated to give some of his candy to the 6-year-old?
Stick around for part three, in which I will explain the flaw with that premise, as well as the solution to the problem it presents.