TCS Daily

From Progressive to Parasitic

By Stephen W. Stanton - January 17, 2003 12:00 AM

We all like compliments. It feels good when people tell us how good we look or how smart we are. So to look our best, we put on makeup or dress in sharp clothes. To appear smart, we take progressive positions on the issues of the day.

Wait a minute... Lots of people hate being labeled "progressive." There must be some mistake. Right?

No mistake. According to the American Heritage® Dictionary of the English Language, "progressive" means "favoring progress toward better conditions or new policies, ideas, or methods." We all favor better conditions and new ideas. (That's why people think we're so smart.) So in a literal sense, we are progressive. I doubt many readers come to this site looking for old ideas that lead to worse conditions.

Somehow, the word "progressive" was hijacked. For example, now "progressive" is often applied to tax policy to mean "increasing in rate as the taxable amount increases." Of course, champions of this policy think it is literally progressive, in other words, a good idea. They are wrong.

The graduated income tax is not really progressive at all by any traditional definition. First, the idea is not a "new". (The Communist Manifesto was written before the Civil War.) More importantly, graduated tax rates do not lead to "better conditions". Excessively graduated taxes are a bad idea, economically, politically, and morally.

Economics, Politics, Morals

Economically, progressive tax rates maximize marginal costs and minimize marginal benefits for investors, businesses, and workers. Since all economic decisions are made at the margins, progressive taxation inhibits economic growth far more than flatter systems, where no economic activity is taxed at more than the average tax rate, minimizing deadweight loss. With historical GDP growth near 3%, even a 1% boost would pump up the economy by an additional 14% in today's dollars in just ten years. That difference alone would be more than enough to absorb every currently unemployed worker twice at the current national average real wage. Growth matters, and progressive taxation destroys growth and the jobs that come with it.

Politically, progressive taxation destroys our notion of government "by the people". Fewer than half of all 285 million Americans file income tax returns. Fewer than 3% of American citizens pay the majority of income taxes. Clearly, "the people" do not bear the burden of self-government. For too many, there is no shared sacrifice, without which democracy falters.

Congressman Charles Rangel inadvertently made that exact argument for flatter taxes in his press release calling for reinstatement of the draft. "No policy, whether on taxes, health care, Social Security or any other pressing domestic concern, can be separated from the concept of shared sacrifice without threatening the people's belief in their leaders." He is right to worry. The masses also do not share the sacrifice of income taxes, choosing instead to extort usurious levies from an affluent minority.

Morally, it is wrong to make freeloading our national policy. More than 75% of Americans pay less than 4% of income taxes. That is way too progressive by any measure. With so little personal stake in the government, lots of people no longer feel the responsibility of ownership. They ignore John F. Kennedy's injunction and ask only what the country can do for them, since they do not have to foot the bill.

At least that was the attitude at Enron. As a group, the executives and directors of Enron owned only 3.44% of the company's common stock. That includes corporate poster boys Ken Lay and Jeff Skilling. They were pretty loose with other people's money, unlike the CEOs of Berkshire Hathaway, Dell, and Microsoft. They lead the way the shareholders want them to. Why? Simple. The people that run the companies are also the largest shareholders. People act more responsibly when they have a personal stake.

That is exactly why most insurance policies require a deductible or co-payment. It seems reasonable to ask citizens to make a similar co-payment for their own education and national defense. Even under communism, all citizens were expected to contribute in some way. Yet half of all Americans pay absolutely nothing for the services of America's military personnel, our teachers, our police officers, and our garbage men.

Question of Balance

Ordinarily, people on both sides of an issue can agree that even a good idea can be carried to ridiculous extremes. For example, none of the most radical environmentalists wants to outlaw breathing. Yet Earth's twelve billion human lungs crank out more carbon dioxide than all of the cars in the United States. (You can also check here.) A few degrees of global warming does not call for the brutal extinction of the human race. Even those who disagree with the numbers admit that at some point, the ends no longer justify the means.

The same is true of progressive taxation. Even if it were a good thing, there can certainly be too much of it. The American tax code is a perfect example. A quarter of all Americans pay, on average, seventy two times as much taxes per person than the rest of the nation. Tax policy has crossed the line from progressive to parasitic.

Unfortunately, recent liberal dogma on taxes stipulates that any reduction in top tax rates is "regressive", transferring wealth from the poor to the rich. That is absurd. By definition, a tax is only regressive if the effective rate goes down as income goes up. Even after the cuts President Bush proposed, the top tax rate will be nine times the average tax burden of 75% of Americans.

What about the "regressive" Social Security tax? We should eliminate it. Let workers keep their money in private accounts. Not only is privatization a good idea, it would put and end to Paul Krugman's nonsense about double taxation. (Should...) There will be no more transfers from the poor to the rich. No more regressive taxes, period.

While it is still a far cry from a flat tax, the Bush tax cuts are an excellent compromise. The Bush plan is extremely "progressive" in every sense of the term. It's a new idea, it will lead to better conditions, and the rich will still get soaked disproportionately. It's time we take back our word from the liberal hijackers.

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