Income Tax Policy
It is amazing to think that Russia now has a flat tax of 15 percent while our nation’s tax code is mired in 45,000 pages of regulation.
“From each according to his ability, to each according to his need.” That was the motto of Russia’s communist system. It’s a concept as old as Robin Hood: take from the rich and give to the poor.
Now it’s America practicing Robin Hood politics. According to new statistics released by the IRS, the top one percent of taxpayers pay 40 percent of all the taxes. The bottom 50 percent pay three percent of all taxes.
A recent Wall Street Journal article showed that the top 10 percent of taxpayers in the United States paid more taxes than France, Germany or Sweden.
Tax receipts by the Russian government skyrocketed since instituting the flat tax. Once a reasonable, fair, simple tax was put into place, Russians quit hiding income and started following the law. Now the Russian economy is booming while the rest of the world is in a recession.
Incredible. The country that we battled for 50 years for promoting Godless communism, the country that had sworn to bury us, has a less progressive tax system than we do.
It was Karl Marx, founder of communism, who warned about the “internal contradiction of capitalism.”
Marx argued that competition would force businesses to lower wages. Lower wages would give consumers less buying power, decreasing sales. Lower sales would force businesses to cut costs and lower wages even more. Eventually, the whole system would collapse in a vicious cycle.
Marxism was on the rise when the world entered the Great Depression. The United States lost confidence in the free enterprise system and ushered in an era of government programs.
Today, the United States has a large degree of socialism. A third of our economy is government controlled.
Almost every new industry coming to Mississippi is offered a whole host of government subsidies.
It’s as though we have lost confidence in the free market.
We think government intervention is necessary.
The Russian communists had so little faith in the free market they tossed it out. Seventy years later and their country in shambles, they admitted they made a mistake. Government will never operate as efficiently as the free market.
There is a trade-off between equality and efficiency. Equality is a great concept, but if you take from productive people and give to the less productive people, you will discourage hard work and innovation. Eventually, the entire country will suffer a lower standard of living.
It is a simple fact that people who make a lot of money have done something to earn that money. Why work hard if the government’s going to take it away? Just ask the Russians.
Government mandated income redistribution may be good economic policy. It promotes consumer spending, social stability and broadens the middle class.
But such policies contradict the founding philosophy of our country. Freedom, liberty and the protection of private property were the cornerstones of our Constitution--not economic equality.
In 1913 our Constitution was amended to allow for an income tax. The tax started as a one percent tax applicable to everyone.
It is a reality of democracy that 51 percent of the voters can pass laws to take away the money of the other 49 percent. That’s what philosopher J. S. Mill warned about when he wrote about the “tyranny of the majority.” Our Constitution, as originally drafted, was supposed to prevent that from happening.
The rich pay the most taxes because they can best afford it. That’s been our country’s real philosophy for quite a while. It’s not a very inspiring philosophy but it seems to work.
We must be careful not to kill the goose that lays the golden eggs. Too much income redistribution will discourage people from taking the risks and exerting the effort necessary to get rich. Too much equality will reduce efficiency.
We must resist the temptation to demonize the rich or business. Instead, we must all try to understand how free markets work in a free country. Making a profit is a good thing, not a bad thing. People who are successful should be admired not villainized. Those who make the biggest contribution to the economy should be rewarded, not penalized.