The Case Against the Progressive Tax

Yes, but as has been recognized in political science for more than a hundred years, societies may rationally believe in mutually incompatible ideas--and thus find themselves balancing competing goods.

In the case of the progressive tax, while it offends against the principle of discrimination, it supports what been an aim of tax policy in every Western democracy since the development of tax policy: redistribtion of monnies so that there are not alarming extremes of wealth in a society.

While this aim is increasingly under attack, there is one incidental benefit to a progessive tax that means that it is unlikely that it will be done away with: The cost of modern government are so exorbitant, and will remain so (with a defecit that would have shamed Ronald Reagain, and an aging group of baby boomers), that some one has to pay for it. The rich pay according to their ability.

As always, when hearing conservatives discuss tax policy, it is clear that their real goal is to diminish the size of government--a goal that economists like Friedman are honest about when they discuss defecits, flat taxes, etc..

First, it is total nonsense to say that tax policy started with the aim of the redistribution of income. Taxes were to fund the operation of governments and it is a relatively modern concept that taxes should also be used to redistribute wealth.

Second, the assumption that a progressive income tax actually works to redistribute income is a popularly held notion but there is evidence this it in fact is not true. That is progressive taxes do not in fact redistribute wealth--they may only have an overall negative effect on the amount of wealth (see http://www.r21online.com/archives/000091.html)

Third, setting my second point aside and supposing a progressive tax does in fact successfully redistribute wealth, where is your so-called "balance" in this debate? Very few politicians--not even Bush--argue Novak's point. Indeed it is politically incorrect to argue that his side even has merit. If you were truly interested in balance then you must give Novak's argument SOME weight. But let's look at the reality: the top 5% of income earners pay over 50% of the taxes while the bottom 50% pay less than 5% of the taxes--and this is way out of proportion of what they earn. Is this "balance"?

In fact, Bush's first AND latest tax cuts both INCREASE the progressivity of our tax code (see http://www.r21online.com/archives/000288.html#000288) which means that it was an effective tax INCREASE on the wealthy if you look at it from the POV of how much of the total tax burden the "wealthy" are expected to shoulder (not just at the fact that since the tax burden is decreased those that pay taxes will save more than those that don't). Even given this reality, the Democrats have howled that these are "tax cuts for the rich!" But of course, as Novak points out, many of these are people who simply have a family income of over $75,000--hardly the Bill Gates' of the world.

There is no balance here to be found.

To your second point, conservative economists indeed have argued that a progressive tax diminishes the over all tax base--but that's different, isn't it, from the fact that a progessive tax might still reduce inequalities in wealth.

I do not argue in favor of redistribution in itself--I am agnostic on the issue--but one should recognize that a many liberals sincerely think that it is bad for a society to support too much in the way of differences in wealth. They are willing to attack economic freedom to this end. This is one of the long-standing justifications of a progessive tax.

Your third argument is specious, I am afraid: Since the tax Bush cuts are so huge, and since the rich pay a disproportionately large amount of the tax burden, unless radically cut government spending all together, the rich would have to accept a larger portion of the REDUCED tax base. Which is not to say that this tax cut is not a large-scale curtailing of the traditional obligation of the rich to pay for government, and an attempt to create large defecits in order to diminish the effectiveness and scope of government.

As Michael Kinsley wrote today on Slate: What we had suspected was a Machiavelian plot with the Reagan defecits, is the actual policy of the Second Bush Administration.

Finally, and to your first point, of course the income tax predates a coherent theory of tax policy. From the time bureaucrats and ecomomists formulated a theory to justify taxes, redistribution has been one of the three legs of tax policy (the others are the funding of government programs, and equity: that people should pay according to their means).

So you are suggesting that the progressive tax is not meant to redistribute wealth but merely as a sort of punitive measure to keep wealthy people in check while doing nothing to increase standing of the non-wealthy. I think there are relatively few American socialists who would support an approach to leveling incomes that merely brings the wealthier folks down, rather than bringing the poorer folks up. I think most Americans realize that growth is in their best interest and wouldn’t sacrifice growth for the sake of artificial leveling. Sure some radicals on the left feel this way, but the vast, vast majority, including most Democrats, simply does not.

You are more on target when you hint at the “fair share” argument, which many on the left argue that it is just plain fairness for the wealthier to pay more. Everyone agrees with that, but the question is how much more as a percentage. The Democrats, having by and large abandoned the redistribution idea (wake up Jason, The Nation does not speak even for the Democratic Party), are forced to argue that tax cuts are actually damaging to the economy and deny to that a steeply progressive tax code has consequences on growth. Despite the fact Rubinomics is refuted by the evidence, many Democrats hate tax cuts, love big government, and so stick by it. They use the “tax cut for the rich” to raise popular support on the ground of fairness, and Michael Novak makes a strong counter-argument that fairness goes the other way as well.

You are right that many (including I) believe that tax cuts are best primarily because it puts a downward pressure on spending. Are you denying that this is needed? Look across the country at the many states facing budget disasters because they spend like drunken sailors. If they had in the last 10 years only increased spending along with inflation and their states population growth, we’d have $100 billion in SURPLUSES at the state level (and the same principle applies at the federal level). But politicians, like those in California, love to spend money (it’s what keeps them in office) and a massive expansion of government has resulted as well as economic havoc. What is happening to the California school system right now is unconscionable, and it is all the result of terrible political leadership and bad planning. So your suggestion that this is an attempt to “diminish the effectiveness and scope of government” is what is specious. This is an attempt to curtail (not even roll back, just slow the growth) of out of control government spending. How can you deny this is a problem?

Yes, indeed: I am saying that when progressive taxes were first introduced in Europe and America one of their explicit justifications was that they were "punitive"--although that was not the language used. At one time the top tax rate in the United Kingdom exceeded 100 percent (about the time my family left Britain): The explanation was not only that it gave much needed monies so that the government could build the "New Jerusalem," but that it would undermine the inequalities in wealth that fostered the British class system. Keith Jacob and Margaret Thatcher were profoundly energized by what they thought was an immoral punishment of the rich, as well as something that discentivized ambition. You are quite right however in thinking that this justification is socialist. Nor is it one that I personally agree with.

To your second point, "Rubinomics" is in fact supported by the evidence: paying off the defecit did reduce long term interest rates, and with it the cost of money, and was at least in part responsible for the boom in investment that characterized the 90s. As a side note, I am uncertain why calling this theory--hardly contreversial--after the much-admired, Wall Street banker who was Clinton's Treasury Secretary is meant to make the theory suspect. I think every one--even The Nation--would like tax cuts if they could be paid for. They might even accept that they were a force for growth. But only a Republican in heat could honestly argue that cutting taxes and increasing spending is good for the economy.

Finally, at least your honest. But let me ask you a question: Since Republicans now control the House, the Sentate, the Executive (and for that matter the Judiciary), as well as many Stae legislatures, why don't they simply reduce spending themselves? They can have any kind of government they want.

Jason