Friday, October 31, 2008

Redistribution and Taxation in America

The Tax Foundation recently summarized a report by the Organization of Economic Cooperation and Development (OECD). The report points out that the U.S. has the most "progressive" tax systems in the economically developed world. Progressive taxation is simply defined as the more you make, the more you pay. The left in this country often admires the social welfare states of Europe as models for America.

Why, then, is the left not satisfied if America taxes its rich people more than Europe? Is it because our unemployment rate is lower than France? Germany? the EU overall? Is it because, despite our government having the largest budget of any nation on Earth, one that exceeds the record profits ExxonMobil made by more than 200 times, it still isn't big enough? Is it because we are not as politically correct, or that our electorate is center-right instead of center-left or far left? Is it because our government's level of social and economic control isn't enough? One can only wonder.

I happen to like capitalism--not unfettered, not utterly unregulated, but not owned or controlled by the government. Governments exist to spread resources more or less equally to soothe a restless populace. Capitalism exists to allow individuals to compete and produce new goods and services at the lowest costs and highest profits possible. Simple supply and demand determine what those costs and profits will be. In the realm of government, costs and profits can be and are regulated, not according to supply and demand, but according a nebulous definition of fairness, with that definition changing constantly, depending on the political priorities of the ruling party. When government gets too involved in capitalism, you end up with crony capitalism, as happened at Fannie Mae and Freddie Mac. Once government starts trying to pick winners and losers, either through political favors or "fairness," it inevitably becomes less "fair," more expensive, and much more intrusive.

What bothers me about the two presidential candidates (Obama more directly than McCain, but McCain is just as willing to interfere with the market) is that neither of them has my full confidence that they will restore some sense of rationality, independence, or competition to the market. Everything is becoming "too big to be allowed to fail," from banks to insurance companies to car makers and airlines, so government "must" step in to "save" these businesses. This salvation comes in the form of a government bailout, which must be paid for somehow out of the public treasury, which in turn must come from the taxpayers.

If businesses fail due to bad management and the government partially bails them out, their employees become unemployed, and they might or might not find jobs. The unemployed who remain unemployed do not pay taxes and collect unemployment insurance from the government, becoming a double "cost" to the government. So then one must ask: where is all the money supposed to come from to save future businesses and all the other stuff the two candidates want to do?

It has been suggested to me that we could cut the military. Swell. As long as we go bipartisan on this issue and start cutting Social Security and Medicare benefits. Or maybe cut the Department of Education, which spends more and more for worse and worse results. Or we could be seriously suicidal with our nation's future and cut federal infrastructure spending--roads, basic science research, and space.

Another suggestion I've heard is to cut the capital gains and corporate tax rates--America has some of the highest tax rates in those two categories, too. Might as well try it at this point; if the Fed lowers the interest rate any more, they're going to start reaching negative numbers. And I love it when I hear that "tax cuts for the rich" line. Having already established that we tax the rich more than anybody and (in a previous posting) that 50% or more of the American public invests in the stock market, why should the American people be offended by efforts to help businesses? Where do they think the value of their pension funds or 401(k)s was coming from? If the health of businesses improves due to tax cuts, and millions of Americans' retirement accounts immediately increase in value, that's not just "trickle down" economics--that's a direct benefit to 50% of the American public!

Never mind. I can just wait for Obama to allow the Bush tax cuts to expire, sink the economy further, and watch the government take over even more of the private sector so I can wearily say, "I told you so." But don't think I'll do it with any sort of pleasure. It's my country, too.

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