STAFF NEWS & ANALYSIS
In Defense of a Progressive Tax System … Not
By Staff News & Analysis - April 16, 2014

The lost promise of progressive taxes … By midnight on April 15, roughly 140 million Americans will have filed their federal income tax returns and breathed a sigh of relief. Politicians from both parties, however, will spend most of the day criticizing our current tax system. – Reuters

Dominant Social Theme: Tax everyone according to his ability to pay.

Free-Market Analysis: This Reuters editorial makes the case that progressive tax systems are good and that the "wealthy" among us ought to pay "their fair share."

The editorial also makes the point that progressivism generally seems not very popular anymore and that progressive tax ideas are worth defending and expanding.

Here's more:

… Progressives a century ago, like their liberal counterparts today, believed citizens owed a debt to society in relation to their "ability to pay." This curt yet crucial phrase captured the idea that people who had greater economic power also had a greater social obligation to contribute to the public good – to contribute not just proportionally but also progressively more.

Influential thinkers and political leaders – including Francis A. Walker, president of the Massachusetts Institute of Technology, and William Jennings Bryan, three-time Democratic presidential nominee – used the term "ability to pay" to illustrate the widening circle of social responsibilities in a modern society.

The Progressive Era was, after all, a time when the social dimensions of American democracy were paramount. "The identification with the common lot," as the influential social reformer Jane Addams noted, was "the essential idea of democracy."

Creating a new tax regime based on the ability to pay had significant consequences. Not only did it provide sorely needed revenue while addressing growing inequality, it also fostered greater social solidarity and bolstered faith in government – a lesson lost on many lawmakers today.

Progressive Era politicians knew that adopting graduated taxes to counterbalance the existing regressive tariff and excise tax was one way to show that all Americans were contributing to the greater collective good. Graduated taxes reflected the importance of shared sacrifice.

Reformers believed progressive taxes could be used to reconfigure the relationship between citizens and the state to renegotiate a new social contract and forge a new sense of fiscal citizenship. Activists also contended that a lawmaker's duty, as part of this new social contract, was to ensure that the tax burden would be shared fairly by all Americans.

If policymakers held up their end of the bargain, reformers argued, citizens would come to trust, even welcome, the growing powers of the modern state. Americans would come to see how the public sector could enhance their private lives, creating the basis for economic development and prosperity, while also providing assistance in times of stress and crisis.

They would view government not as an enemy, but as an ethical agency "whose positive aid," Richard T. Ely, the progressive economist, explained, "is an indispensable condition of human progress." This tax day it may be useful to reflect on how an earlier generation of bipartisan reformers and lawmakers responded to a similar set of concerns – by creating the foundations for and the promise of a more progressive fiscal order.

The crucial point of this editorial is toward the end, where the statement is made that progressive taxation was intended to create a picture of the government as an "ethical" agency providing "positive aid" to society's have-nots.

Progressives wanted to position government as an "indispensible condition of human progress." The editorial wants to remind us that such concerns generated the "foundations of a more progressive fiscal order." While all this sounds fairly high-minded, it is hard to observe today's tax system in the West and especially in the US and believe that it contributes to making society a better place.

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Tax regimes install fear, first of all, and thus even if one pays his or her taxes, the fear of an audit still exists. The power to tax is certainly the power to destroy.

Modern progressive tax regimes are not capped. In places like France, the top end continues to rise and finally you end up with absurdities in which the most wealthy face taxes of up to 75 percent or more.

Progressive taxation sounds "fair" but because of the variance of tax regimes around the world, some wealthy individuals and corporations benefit from extraordinary loopholes that others cannot gain access to.

Under many progressive tax regimes, it is the middle class that bears the brunt of taxation. The very wealthy effectively lobby for relief; the poorer classes pay little or no tax.

Governments have a propensity to spend whatever revenues are acquired. Thus, progressive taxation, which generates enormous tax revenues, will eventually prove insufficient.

As government gains access to increased tax revenue, the level of government corruption inevitably expands. Yesterday's desirable public service or resource becomes tomorrow's boondoggle.

The more taxation there is, the more products and services the government itself manages and marshals. Eventually, governments run the risk of crowding out the private sector entirely in certain arenas.

In the modern central banking era, it is questionable as to whether governments even need to collect taxes, as monopoly money printing itself may cover any necessary expenses.

Then, there is the question of whether government can provide products and services as effectively as the private market. If one subscribes to free-market economics, government spending on various products and services is bound to be inferior to private market operations.

Government spending often suffers from a lack of follow-through. It is feasible to build "big box" projects, but often the revenues to keep those projects running is lacking. This is the reason why government-built infrastructure so often runs down.

The progressive era of taxation in the US and throughout the West was successful in installing progressive taxation. But success in creating a system does not guarantee that system is necessary or efficient.

By not mentioning any of these issues, and by not examining some modern scholarship regarding progressive taxation in the US – including whether progressive taxation was lawfully introduced and enforced – the article may be seen as providing more questions than answers.

There is a kind of history developed and presented in this article regarding progressive taxation. But someone who has studied the history of Western progressive taxation might conclude that the reasons for such taxation have little to do with any accepted, mainstream historical narrative.

Taxes, in fact, often do not do the job they are supposed to do, nor were they likely developed and applied to achieve the goals that politicians claim for them.

A free-market approach would see the level of taxation drop dramatically and perhaps progressive taxation would be done away with entirely. The Invisible Hand is far more capable of providing goods and services than a bureaucracy, no matter how efficient.

After Thoughts

The best government governs least. Progressive taxation provides governments with wherewithal and temptations that often degrade rather than expand civil society.

Posted in STAFF NEWS & ANALYSIS
  • There has been a centuries long struggle of monarch-monopolists to destroy meritocracy, Truth and humanity and create their feudal utopia. Near total control of banking, media, government and core industries has allowed the puppet masters to escape notice. “The Real Vampires, An Inside View of Banks” at Veterans Today explains the origins of the 1694 ‘Investment Bank’, fractional reserve, debt based economic model. The ‘Progressives’ supported anti-trust legislation, but only applied it to the upstart nouveau rogue, upper middle class. The ruling monarch-monopolist are above the little people laws. The 1913 Feral Reserve PRIVATE Banking Act and Income Tax were rubber stamped by progressive puppet Woody Wilson.

    When Henry Ford began selling farm equipment, and the autos and truck necessary to get products to market, he avoided the east coast monopolies of coal, steel and banking. Ford developed his own material supplies and financed his own products. The bankers responded by creating the 1920 depression, and when Rockefeller cousin, FDR got elected in 1932, his policies extended the depression. Hitler was tied for Chancellor in 1932 and became leader with the death of the 84 year old Hindenberg. Hitler offered 7% interest and attracted over $100 million of US investment from powerful money bundlers [1]. Hitler defaulted on all payments, causing US Ambassador Dodd to resign, and the elitist stage setting for WW Two was complete [2]. The ruling elite then adopted a dodge for their ‘share’ of progressive taxes, the ‘Philanthropic Foundation’ where they ‘donate’ their vast wealth to a centrally managed pool and are allowed a 10% return every year that is TAX FREE management fee. Only qualified, compliant billionaires are allowed into this self titled ‘Good Guys Club’ and includes all the usual monarch-monopolist players.

    “The way to crush the bourgeoisie is to grind them between the twin millstones of taxation and inflation” ~ Vladimir Lenin

    Interesting that the monarch-monopolists found and funded Marx, Lenin, Stalin, Hitler and Mao, and then added the EXTRA millstone of regulation to finish the grinding of humanity.

    [1] “How Bush’s Grandfather Helped Hitlers Rise to Power” at UK Guardian

    [2] “Overthrowing the Kit and Kaboodle” at FauxScienceSlayer

  • Bolt Upright

    Farming humans is expensive. Especially when they have no market value…. It’s like, when one farms something knowing there will be no return on “investment”….what’s the point? … “investment” is one of those Progressive words they like to banter about like they are spending your wealth on something worthwhile…

  • Hugo

    Hi DB,

    This WSJ blog has some nice theme’s like you analyse well in the piece.

    The first is that the current system is not fair and we need more progressive tax;
    ”New York City Mayor Bill de Blasio and first lady Chirlane McCray reported $165,047 in total income last year, according to a copy of their joint tax return released on Tuesday……. Mr. de Blasio’s effective tax rate was 8.3%.”

    ”City Council Speaker Melissa Mark-Viverito, a Manhattan Democrat, reported total income of $128,521 in 2013, according to a copy of her tax returns. She didn’t report any charitable contributions. (Bad her!)…. Her effective tax rate was 15.9%.”

    The second one is transparancy;
    ”Mr. de Blasio, a Brooklyn Democrat, is the first city mayor in 12 years to release a full copy of his tax returns. Mr. de Blasio’s predecessor, Michael Bloomberg, a billionaire who served as mayor from 2002 through 2013, released highly redacted copies of his return that gave scant information about his net worth.”

    http://blogs.wsj.com/metropolis/2014/04/15/mayor-bill-de-blasio-releases-his-tax-returns/

    • Hm-mm … the resurgence of progressive taxation …

      A new meme?

      • Hugo

        Although Iam not totally sure, sure seems to me a recycling of an old meme that existed here in Holland at least since the ending of WW2.

        This Reuters piece seems the making of a new meme to me for sure. Short summary, BRICS vs the West.
        http://ca.reuters.com/article/businessNews/idCABREA3C02K20140413 (long Central Banking themed read)

  • autonomous

    I was irritated by this writer’s making of a defacto straw man argument against another’s position without giving his antagonist an opportunity to defend. You should have given your readers a reference to the article you are “refuting.”

  • NowYouKnow!

    In his new book “ Taxed To Death: How the Income Tax and IRS Harm EVERYONE in America ,” Dr. Lawrence Hunter explains why any direct tax on income undermines liberty and prosperity and leads to suicidal collectivism:
    “A direct tax on income is an insidious tax on industriousness and creativity that drains the society’s vitality and redirects people’s energies away from productive work, saving and investment in the private economy toward unproductive and destructive pilferage and plunder through the political process. Eventually, the very redistribution that nourishes the collective destroys it. Caught in the throes of its redistributive delirium, the welfare-warfare state redistributes more and more of less and less until driven to its ultimate lunacy, it leaves most everyone sharing equally in the misery it creates.”

  • PatrickHenry1789

    Most Americans aren’t liable for filling out forms and paying income tax. Quit doing it if you’re not liable in the tax code. You’re paying for your own shackles and chains!

    taxhonestyprimer.com

  • A heads up folks! Apr 16, 2014 J. Christian Adams (Former Justice Department attorney) on government’s latest method of legalized theft: taking money from children if parents owed it.

    https://www.youtube.com/watch?v=x0P2n0PV-f0#t=92

    Debtors prisons are coming back in vogue!

    • SteveD

      Unbelievably, this was an add on to the Agricultural Act of 2014. Indeed, it is unconscionable theft by the federal government. Ironic since the government doesn’t even need our dollars since it is a currency issuer. I’m certain however, you should be quite pleased with the portion of the Act that reduces SNAP benefits.

  • Earl of Isadore

    Not a direct response but a couple of expressions of the “from each according to their ability …” idea:

    “And the multitude of them that believed were of one heart and of one soul: neither said any of them that ought of the things which he possessed was his own; but they had all things common. 33 And with great power gave the apostles witness of the resurrection of the Lord Jesus: and great grace was upon them all. 34 Neither was there any among them that lacked: for as many as were possessors of lands or houses sold them, and brought the prices of the things that were sold, 35 And laid them down at the apostles’ feet: and distribution was made unto every man according as he had need. The Apostle Paul ‘Acts 4:32–35: 32’ (a reason why most Christians are sympathetic to a fundamental concept of socialism)

    “In a higher phase of communist society, after the enslaving subordination of the individual to the division of labor, and therewith also the antithesis between mental and physical labor, has vanished; after labor has become not only a means of life but life’s prime want; after the productive forces have also increased with the all-around development of the individual, and all the springs of co-operative wealth flow more abundantly—only then can the narrow horizon of bourgeois right be crossed in its entirety and society inscribe on its banners: From each according to his ability, to each according to his needs! – Karl Marx ‘Critique of the Gotha Program’

    “…had pale eyes that looked fishy, cold and dead. And if you ever want to see pure evil you should see the way her eyes glinted when she watched some man who’d talked back to her once and who’d just heard his name on the list of those getting nothing above basic pittance. And when you saw it, you saw the real motive of any person who’s ever preached ‘From each according to his ability, to each according to his need.” Ayn Rand ‘Atlas Shrugged’

    • Gina

      Most Christians have been mislead into believing that Acts 4 is an example for every day life, and an argument for socialism / communism because they have never understood the reason that all the newly baptized Christians in Jerusalem sold their lands and houses. They were preparing for the “2nd Coming” of Christ…. a euphemism also erroneously applied as Christ rules His Kingdom now and has since His Ascension, and have come in judgment of the nations many times over the last 2,000 years …. preparing for the judgment that would come upon the Scribes and Pharisees, upon the Sanhedrin Council and all those that crucified Christ. They knew, as Christ told the Apostles that the temple would be destroyed. They knew that they would need to leave Jerusalem as soon as they saw the “abomination of desolation” – the Roman army – encircling the city. They wouldn’t have time to sell properties then. They wouldn’t have time to convert their belongings to traveler’s checks. They had to stay ready to leave at a moment’s notice. They lived on that expectation for close to 40 years. At the destruction of Jerusalem in A.D. 70 all of the Christians left before the siege.

      They also had to sell their properties and live off the proceeds as the customs of the Jewish synagogues and the Councils were to ex-communicate every Jew that converted to Christianity. They were not allowed to buy or sell, to offer their services or products at market. Their goods were spoiled…. destroyed. They were abandoned by family members, and had only each other to cling to.

      None of this was an endorsement for communal living. It was only a temporary arrangement for a specific generation anticipating the persecution and the judgment prophesied against Israel and Rome. God’s plan for salvation is a ringing endorsement for individualism, not collective socialism.

      Moreover, the income tax is a privilege tax for working for the U.S. Corporation domiciled in the District of Columbia. If you do not get a pay check from the U.S. government, or any subsidiary corporation thereof, you do not have any liability for the income tax. They can set their privilege tax any way they want to. Stop volunteering to pay it.

      • Myron Goodrum

        Boycott the U.S. Corporation! Stop volunteering! Live standing on your feet, not crawling on your knees!

  • Danny B

    Leaving taxes aside, there is a much more important factor. WAGES. An economy is a circulation. Since wages have diminished, credit has been pumped to the moon. The money sucked out of workers has pushed corporate profits WAY up.
    http://gordontlong.com/Tipping_Points-2014-Q1/04-01-14-MA-LR-26-Market_Distortions-Buybacks-Dividends-00-Cover-c.png

    http://gordontlong.com/Macro_Analytics.htm#Dohmen-04-15-14

    ZIRP has killed interest income. NOBODY has money for discretionary spending. Why do you think CAPEX is DEAD? No circulation. As we slide towards Chinese wages, we will slide towards a level of consumption equal to the Chinese.

    The $hit-for-brains who guide our economy print currency to devalue labor and retain market share in manufacturing. The commodities market is global,, only labor can be devalued. Seen from street level, a currency devaluation is just a wage cut. The wage/cut /// price/inflation diminishes consumption and circulation.

    I would rather see corporate profits diminished from paying higher wages than paying higher taxes. A currency war is a war against labor. Eventually, there is a trickle-up effect. Why do you think P/E is so dismal?

    Capital flows abandoned high-wage producers. In the global marketplace for labor, the Bangladeshi and the robot are in demand. Low wages killed labor. ZIRP is in the process of killing Capital. Greek bonds are going for just over 5%. Junk bonds are way down low. Capital is so desperate for returns that it jumps into anything. Consumption is dead. Not to worry,, they have a plan;

    Welcome to the Currency War, Part 15: Europeans Ordered to Start Consuming

  • Hey You

    There are many problems with “our” society, and centralized edicts intensify the problems simply because of the inherent corruption. However, hang in there; it appears that in the USA, centralized federalism will probably implode. There may be some more war years but this system won’t hold together for more than 4 or 5 years.

    • Myron Goodrum

      Thank goodness it will be imploding soon…we can’t take much more of this so-called “fair”, “ethical” and “indispensable condition of human progress”.

  • Libertarian Jerry

    The fact is that the Income Tax only accounts for about 1/3 of all Federal Revenue. The 2/3 difference is made up of Corporate taxes,payroll taxes(Social Security taxes,Medicare taxes etc.),tariffs,fees,excise taxes plus a plethora of other taxes,charges and of course debt borrowing. The main reasons for the Income tax in modern America are: 1.Controlling inflation(caused by the over printing of currency and the creation of too much credit) by taxing away the purchasing power of America’s citizens. 2. A method of collecting interest payments on the debt that goes mainly to bankers and foreign entities that hold the U.S.debt. 3. A way of transferring wealth from the productive economic sector to the non-productive political sector. 4. A method for the Political Class and the politically connected class to control by fear and intimidation,by way of a vague and ponderous Tax Code,the average citizen. All of this is,of course,aided and abetted by corrupt politicians,judges,government officials,law enforcement plus the Main Stream Media,Academia,and by both the Accounting and the Legal professions. With the Income Tax came the end of privacy in America years before the creation of the Patriot Act. The bottom line is that the Income Tax is a yoke around the necks of every productive citizen in America. That it flies in the face of not only privacy but the Bill of Rights. It is an institution that is not necessary,counter productive,anti personal liberty,anti privacy and should be abolished,root and branch,before it totally destroys America. With that said,I sadly do not see this happening in the few years left in my lifetime.

    • SteveD

      #2:

      Government debt is a private asset. You and I DO NOT owe government debt, we OWN it. Indeed, the only source of net dollar-denominated financial wealth is federal government debt.

      The federal government pays interest on its debt in exactly the same manner that it makes any other type of payment: by crediting bank accounts.

      The federal debt, being deposits in the Federal Reserve Bank, is not a burden on the U.S. economy. It is not a burden on our future generations, who will not have to pay it.

      Bank deposits do not burden anyone.

      Future generations won’t be involved in any way, with liquidating deposits in the Federal Reserve Bank or any other bank. Only banks “pay off” deposits — by transferring dollars from savings deposit accounts to checking deposit accounts.

  • SteveD

    Central banks don’t print money. They create liquidity.

    Central banks provide the fuel for money creation, but it’s the banks that carry out the actual money creation process. That’s because banks loan money into existence. Loans create deposits.

    The federal government spends by sending INSTRUCTIONS to mark up bank accounts. It can do this endlessly, no taxes or borrowing necessary.

    Federal taxes destroy (uncreate) reserve balances in the sense that reserve balances are a Federal Government liability. When an IOU is returned to the issuer it ceases to exist. An entity cannot be liable to its self.

    Federal taxes are necessary only to enlist the actual use of the currency (in all forms), as a measure to expand/contract the money supply or to curb unwanted “bad behavior.” That’s it.

  • libertarian jerry

    SteveD…….Your whole thesis is gibberish.

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