The OLD Philosopher – John M. Miller
This essay is a follow-up from the previous essay, Hyper-Capitalism or Socialized Capitalism. Its thesis implied, but did not emphasize, that countries whose economies are based on socialized capitalism readily accept higher taxes in the upper income brackets as a means of distributing wealth to all the people, and not just to the wealthy.
The nations whose economies rely on hyper-capitalism tacitly accept lower taxes on corporations and on upper-income citizens. This philosophy is perceived to be the most successful for rewarding wise investment and hard work. Inevitably, however, it also results in a never-ending cycle of the rich getting richer and the poor getting poorer, relative to the rich.
What do the words “rich” or “wealthy” mean? It always depends on who is defining them. To someone with an annual income of $40,000, anyone with an income of $100,000 is rich. “Wealth” also is influenced by the period of time in which it is being described. In 1821 or 1921, someone with an income of $40,000 might be considered rich, but certainly not in 2021. Probably in 2021, most people with incomes of $150,000 to $200,000 would not see themselves to be wealthy, but they would likely insist that those whose incomes are a million dollars a year or more are truly wealthy. And so on and so on and so on.
The level of one’s wealth is greatly influenced by its sources. Does it derive from hourly wages, salaries, or investment income? What percentage of income comes from which types of income?
The wealthiest people (those in the top 5 to 10% in annual income) receive most of their income from investments. Furthermore, these citizens are able responsibly to spend only a small fraction of their total income. The rest they invest, after their taxes have been paid. If people have a yearly income of many millions of dollars, they can only fiscally utilize a limited number of homes, cars, boats, planes, clothes, gadgets, technological devices, and so on. Thus the only reasonable destination for all the remainder of their income is to invest it as venture capital or in corporations, innovations, start-up companies, land, real estate, mines, and other such entities.
In every country with every variety of capitalistic economy, there are many tax loopholes for both corporations and individuals. In the USA there are probably more tax loopholes for both individuals and corporations than in any other nation on earth. Countless sessions of the American Congress have contributed to a tax code numbering thousands of pages in length. The IRS, via Congress, has also given more employment to more certified public accountants than any other nation-state on the planet.
Regularly we read of American corporations that pay no taxes at all. In the past year we have learned that the former president of the United States paid only a few hundred dollars in income taxes over several years, and he proudly proclaimed himself a billionaire before, during, and after his presidency.
Should the wealthiest Americans be allowed to engage the most adept accountants to discover the loopholes which most benefit their clients? Is that just? Is it moral? Is it ethical? Shouldn’t many of those loopholes be eliminated, and shouldn’t the tax rates be raised for those in the highest income brackets?
The very wealthiest Americans achieved their fiscal status because they happened to live in and gained their wealth from the economy of the wealthiest nation on earth! Is it right that it is primarily they who reap its greatest benefits? Ought not everyone also to reap more of their good fortune, since at least half of Americans have nothing at all to invest?
It will be argued that such a notion represents socialism. It does not. As was stated in the first essay, socialism means the state ownership of all the means of production and distribution, and in the United States of America, the government owns an exceedingly small percentage of our wealth production. From time to time the government does invest tax revenues in private-venture capitalism, but it does that to promote economic growth and jobs. It intends eventually to recoup its loans, and to gain other revenue from future taxes on the corporations they have assisted. Hardly anyone opposes that. Theoretically, it aids everyone.
The problem with American tax policy, and it is a huge problem, is that for the good of the entire nation, it takes far too little in taxes from its corporations and its wealthiest citizens. We supinely consign tens of millions of Americans to near-destitution who are barely able to scrape by, while our tax policies almost guarantee a few million of the highest-income Americans to acquire even greater amounts of wealth. With the best efforts they can’t even spend but a small percentage of the wealth they already have. Why should so many spend every dollar they have every month, when so relatively few acquire millions or billions more dollars every year through investments?
It will also be argued that if the wealthy do not invest their wealth, the economy will suffer. Up to a point, that is true. But beyond that point (and there will be no universal agreement on where that is), it is the investors, and not the economy, who reap the gains. Whatever our tax policies and brackets might be, there will always be a relatively small investor class and a relative large paycheck-to-paycheck class.
Tax loopholes were invented to promote investment and to discourage the senseless hoarding of money. In theory, that is good. In fact, however, it has caused an ever-broadening gap between the Haves and the Have-Nots.
Since the end of the Eisenhower Administration, there has been a slowly growing emergence of social unrest. It has not been s steady rise, but over time it definitely has risen. Those on the lower end of the fiscal spectrum, especially Blacks, Latinos, and poor whites, are expressing more and more displeasure with the perception that they are falling back, relative to the people in the upper levels of income. Their perception is correct; they are unavoidably falling farther behind, despite their standard of living has slowly increased compared to previous years.
Annual polls are taken to determine the degree of happiness felt of citizens in various nations of the world. The Scandinavian countries always rank high in those polls. Why? There surely are several reasons for that. One of the most salient explanations for their happiness is that taxes are higher in the states of Scandinavia, but those states also provide the greatest benefits to the greatest number of their citizens by means of those taxes. (That is why Americans and other call the Scandinavian states socialist, which is either an ignorant observation or a deliberately derogatory claim.)
Virtually all Scandinavians are better off because they live in Scandinavia. It isn’t because the weather is better or that they are much more uni-ethnic nations. Nor is it because Danes, Norwegians, Swedes, and Finns are by nature happier. It is because the government, through its tax policies, deliberately spreads their national wealth much more broadly to everyone in the nation.
Does everyone there end up with the same annual income? Certainly not. There is still a wide wealth gap, as in America. But it is not nearly as wide. Everyone is happier at all levels on the income scale. No one suffers from malnutrition or inferior housing or poor health care. The middle class live comfortably, and the wealthy enjoy the same levels of creature comforts as the wealthy in hyper-capitalistic states. Socialized-capitalism serves all of the people much better than American-style hyper-capitalism, which intentionally extends it greatest benefits primarily to the wealthiest citizens among the people.
The April 18 Sunday New York Times had a long editorial entitled Making Tax-Dodging Companies Pay. Here is its opening paragraph. “American companies and companies that made money in the United States are not paying enough money in taxes. Even as profits have soared, tax payments have declined. Fifty-five of the nation’s largest corporations…paid nothing in federal income taxes in 2020, despite collecting reporting more than $40 billion profits, according to the Institute on Taxation and Economic Policy.”
One of the main problems is that the federal government allows corporations to shift profits earned in the US to countries which tax profits at lower rates. Technology and pharmaceutical firms in particular are guilty of using that ruse to avoid US taxes. Since the Tax Reform Act of 2017, whom many have argued was the most influential policy change of the Trump Administration, there has been a rapid outflow of corporate profits from the US to offshore states such as Bermuda, the Bahamas, Barbados, and the Cayman Islands. In 2017 the US lost more than $700 billion is revenues to foreign states and banks through this tax dodge, according to the Times editorial.
Thus this policy has taken money from the US Treasury and given it to wealthy American and foreign stockholders. Furthermore, the tax that the IRS extracts from the wealthy is not trickling down to those on the lower rungs of the income ladder.
President Biden has proposed raising the corporate tax rate to 28%, which is still lower than the 35% rate which existed prior to 2017. In addition, he is seeking an international agreement to establish a minimum corporate income tax rate, thus discouraging corporations from using foreign tax havens. As the Times editorial stated, in the US the taxation of corporate profits amounted to only 0.96% of gross domestic profit in 2018, while it represented 3.14% of GNP in the average developed democracy.
However, it is in individual tax rates where the federal tax code most needs to be revised. Instead of three or four brackets, which are topped off at 38%, there should perhaps be at least four or five more rates above that. Because of loopholes and legitimate deductions, nobody actually pays 38% of total income in taxes anyway. For example, it would not damage the standard of living of someone with an annual income of five million dollars to pay 50% of taxable income. Someone with $50 million in income would not notice a difference if he paid 60% of taxable income in taxes. In like manner, someone with $500 million would sense no change in his livelihood if he paid out 70% of his taxable income, and those few who have a billion dollars of income per annum would be utterly unaffected personally if their tax bill was 80 % of their total taxable income.
To those who would ask why that should be done, I would answer: Why not? It would not hurt the wealthiest individuals at all, and it would greatly help the millions of people on the lowest rungs of the economic ladder. Government programs such as free or very low-cost child care for workers and free or low-cost higher education would take some of the financial burden away from lower-income people who find it difficult to pay those costs. For precisely that reason, it should be done. It is economically and philosophically foolish not to do it. Hyper-capitalism costs; socialized-capitalism pays. And though it is repetition to say it, socialized-capitalism is not socialism.
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The title of this essay is Taxation As Equalization. That does not mean that a nation’s tax policies should attempt to make everyone economically or financially equal. Even if everyone was given an equal amount at the beginning of the year by which to live, at the end of the year there would always be a considerable disparity in the amount everyone had remaining.
It would be folly even to attempt financial equalization among all citizens, because it could never be accomplished. Nonetheless, the disparity of American inequality of wealth among its citizens is perhaps the widest of every developed state in the world, all relevant factors being taken into consideration. That is largely because of the way our culture has evolved and because of the tax policies the government has imposed upon our citizens.
In terms of total wealth, we have more than any other nation, although China is rapidly gaining on us. In terms of per capita wealth, there are a few nations who are higher than we are, but we will likely be far ahead of China for many decades. In terms of the wide gap between the lowest and the highest levels of income, no one exceeds us. That is mainly because of the tax policies our government has adopted over the passage of time.
George Orwell observed that on his fictional Animal Farm, all the animals were equal, but some were more equal than others. There is no such thing as complete egalitarianism anywhere, nor has there ever been, nor shall there ever be. Still, it behooves every nation to become as economically egalitarian as is feasible for its distinctive culture at every point in its history.
In many respects, the USA has admirably sought equality for all its citizens in many aspects of its collective existence. But in the way we collect taxes and in what the government does with those taxes, we have been far too focused on the wealthy and far too little concerned for the poor and the less-affluent among us.
Pay close attention to what politicians propose in tax policy. If those policies are egalitarian in intent, the attention paid will pay off in a healthier, happier total society.
- April 25, 2021
John Miller is Pastor of The Chapel Without Walls on Hilton Head Island, SC. More of his writings may be viewed at www.chapelwithoutwallshhi.org.