Sunday, November 09, 2008


A fairly recent Newsweek article entitled : ‘Spread The Wealth? What’s New?’ argues that progressive taxation inherently spreads wealth and is nothing new in American politics. It is essentially asserted that even the Bush and Regan tax cuts maintained a 'progressive' tax system, and because of this, both Bush and Regan polices could be labeled 'socialist.'

Here is the crucial point the author purposefully ignores: It is not necessarily the method of taxation that can be characterized as being ‘socialist’ . More important is the purpose for which the taxes are levied.

According to the Blackwell Encyclopedia of Political Thought (Oxford,1987) Socialism is the ‘theory of social nature or aspects of production and of its consequences.’ Specifically it involves the argument ‘that economic production has an essential social as distinct from individual element , and that this requires public investment and justifies a public share and distribution of rewards.’

So then, where does capitalism end and socialism begin? A recent article by economist Walter E. Williams of George Mason University describes this well:

‘Under laissez-faire capitalism, government activity is restricted to the protection of the individual's rights against fraud, theft and the initiation of physical force.’

Taxation to support the government’s role to provide national defense, provide police protection, or fund the courts and define property rights are clearly not ‘socialist’ by nature, regardless of how taxes are levied, progressive or not.

What about increasing taxes on the wealthy to fund public housing, to fund health care, give tax refund checks to the middle class, or forcing businesses to pay a minimum wage, or increasing social security taxes? These policies seem could be seen as one approach to making a claim on the public’s share in the distribution of the rewards of production. It is understandable that some would refer to them as having a ’socialist’ flavor.

The author is correct about what appears to be a ‘bipartisan consensus that has favored federal spending at approximately the same level for the past 40 years.’

I can’t close without pointing out that the author inaccurately claims that :

‘What has changed in that period is the way the market has distributed wealth. Since the 1970s,income inequality in the United States has increased dramatically’

First, and most importantly, the author fails to point out what this same data reveals: Wealth and income has increased for both the 'rich' and the 'poor' dramatically since the 1970's.

Anyone that understands economics, understands that markets do not distribute income or wealth. Income is earned and wealth is attained based on the valuations that individuals place on what is produced. As Hayek and Mises pointed out long ago, ‘the absence of human intention in a spontaneous order is neither just nor unjust’.

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