Thoughts on progressive taxation, redistributing wealth
Filed under: economics, history, politics | Tags: Adam Smith, Barack Obama, Bush tax cuts, Earned Income Tax Credit, government spending, John Maynard Keynes, John McCain, Karl Marx, Medicare, progressive income tax, redistribute wealth, redistributing wealth, Slate, Slate magazine, Social Security, spread the wealth around, taxation, Teddy Roosevelt, The Wealth of Nations, Theodore Roosevelt, Vladimir Lenin |
Here is a quick, multiple choice, quiz. First, consider the following quote:
The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.
Now, who said that?
(A) Karl Marx
(B) Vladimir Lenin
(C) John Maynard Keynes
(D) Adam Smith
I’ll get to the answer shortly. I bring it up due to recent discussions on the “redistribution of wealth” in the context of the imminent presidential election. Specifically, John McCain criticizing Barack Obama for wanting to “spread the wealth around” and such. But, as a recent Slate article points out,
Government redistributes wealth to some extent by its very existence, since it’s impractical for citizens to pay for or benefit from it in equal proportion, even if that were desirable. So long as you have a system of taxation and a spending on public goods like education and roads, some people will do better in the bargain than others.
The same article points out that McCain himself supports all sorts of programs that unquestionably distribute wealth, including inter alia Social Security, Medicare, and the Earned Income Tax Credit. And he opposed President Bush’s 2001 tax cuts on the grounds that they unfairly favored the rich. (He has since changed his mind.) And then there’s McCain’s hero, Theodore Roosevelt, who said this:
We grudge no man a fortune in civil life if it is honorably obtained and well used. It is not even enough that it should have been gained without doing damage to the community. We should permit it to be gained only so long as the gaining represents benefit to the community. … The really big fortune, the swollen fortune, by the mere fact of its size, acquires qualities which differentiate it in kind as well as in degree from what is possessed by men of relatively small means. Therefore, I believe in a graduated income tax on big fortunes, and … a graduated inheritance tax on big fortunes, properly safeguarded against evasion, and increasing rapidly in amount with the size of the estate.
Slate argues, in another article, that McCain should either stop calling Teddy Roosevelt his hero or should stop calling Obama a Socialist. T. R., after all, supported the 16th Amendment which authorized progressive income taxes. That first Slate piece then critiques claims that, while McCain’s redistributive policies are okay, Obama’s are far different and go too far. But if you’ve read that article you already know that.
And you also know the answer to the question which lead off this post. So, who did say that people “ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities”? Was it Karl Marx? Or Lenin? Hopefully you didn’t guess either of them; they weren’t very big on any sort of private revenue at all, let alone protecting it with the state, whose existence Marx disdained. So it must have been Keynes, right? Nope. The correct answer is (D) Adam Smith. The quote is straight from The Wealth of Nations—Book V, Chapter II, Part 2 to be precise. If, like me, you own the Modern Library edition you’ll find it on page 888. I was pleased to see that I’d underlined that particular passage when I had last read the work.
Anyway, arguments against progressive taxation have long seemed a bit inconsistent to me. Bill Gates must pay at least tens of thousands of times as much as I do in income taxes. But does he get tens of thousands of times more use out of the Interstate Highway System? Does the U.S. Army protect his freedoms a million times more than they do mine? Sure, he’s got more property to protect, but we’d both be about equally upset if the Canadians invaded and destroyed our homes. So, unless you want a poll tax, where everyone pays the same dollar figure regardless of income, or to have everything based on user fees, you are in favor of redistributing wealth. But, don’t worry, you’re in good company.