Okay, this is a rant. If that offends you, delete this email or skip this blog article. It is unfortunately, election season and I have some tags left. <<< === Good Hunting!
Its Counterintuitive but High Tax Brackets
Actually BUILD Wealth in a True Capitalist Economy
Modern capitalist theory is traditionally traced to the 18th-century treatise An Inquiry into the Nature and Causes of the Wealth of Nations by Scottish political economist Adam Smith. Under capitalism, there is private ownership of the means of production as opposed to public ownership under collectivism. Capitalists favor a market-oriented economy, in which the production and pricing of goods, as well as the income of individuals, are dictated by market demand. Those who have a superior product at a superior price will thrive and those who don’t will wither. This stands in stark opposition to the system favored in fascist Germany in the 1930’s and the former Soviet Union where central planning by the government regulated industry. or local institution.
Concepts like private property, the profit motive, and market competition keep capitalist marketplaces in check but at a cost. Among these costs of capitalism are the unreliability and instability of capitalist growth with often results in financial ruin of individuals (but not the system as a whole), production of social harms (such as pollution and inhumane treatment of workers), and mass income disparity as employers seek the most advantageous cost positions for their products. It is capitalism that introduced chattel slavery to America as a means of increasing production at a lower cost. It is also capitalism that brought about the demise of slavery as the means of production change and the cost of acquiring and maintaining those slaves became prohibitive. Most Americans admire the positive, hard work creates success, side of capitalism, but they try to distance themselves from the costs. It is this keeping the good and shifting the blame for the consequences of the cost that created systems like fascism where the elite are protected under central economic planning (like tax cuts) from the consequences inherent in a true capitalist economy. The United States does not have a purely capitalist economy because some industries and investors are protected from the risk of ruin (through bankruptcy laws for example) of loss.
Taxation is one of the few controls government has, short of actual nationalization of industry (REPEAT AFTER ME – “AMERICANS WILL NEVER BE NAZIONALIST!). The idea is that by using the tax code we can “encourage” certain economic behavior that may not be favorable in the short-term but protects the economy (and individuals) from harm under unbridled capitalism. Traditionally (ie before Trump), tax theory was one of the biggest differentiators between Conservatives and Progressives in government. Conservatives believed, rightly, that high national debt stifled future growth. Progressives, also rightly, argued that income inequality prevented social mobility and future growth. For most of our country’s history, this debate served the public well as it balanced the needs of the public for things like social welfare programs (like Social Security and housing), public services (like education and policing), and public works (like infrastructure and defense) with business needs (like lending and commerce) and economic issues (like free trade and resource harvesting from public lands). The built in tension between these two extremes in our two-party system created a sort of de taunt where compromise ruled.
Ronald Reagan sought to simplify the tax code and in so doing radically reduced both the number of tax bands and the maximum tax brackets. Donald Trump then, irrationally, expanded this to our current lase faire system where the rich essentially do not pay taxes, the debt grows exponentially, and the burden for all public works and programing rests on the shoulders of the shrinking middle class. Over the 100-plus year history of the federal income tax, the number of brackets and rates have changed as Congress sought to solve specific economic issues. The income tax began with seven brackets, but that number exploded to more than 50 by 1929 (to manage the “Great Depression”). Prior to the late 1970s, there were never fewer than 20 brackets. The top marginal federal income tax rate also varied widely over time. The top rate was 91 percent in the early 1960s. In 1981, Reagan reduced the top rate to 50 percent, and in 1986 brought it down to 28 percent. Today there are seven brackets with a maximum tax of 37 percent starting – BUT ALL THE DEDUCTIONS FROM THE 1960’S AND 1980’S ARE STILL IN PLACE, allowing many very rich Americans to pay less taxes than the average lower middle-class worker. People like Donald Trump and Elon Musk made their fortunes by FREELOADING off the government.
Now, no one wants to pay more taxes. That is sort of the point behind tax brackets. You see it works like this: As your taxable income increases, you move into higher tax brackets where you pay a higher percentage of tax on the portion of income in that bracket. If you can, through deductions and exclusions, reduce your taxable income, you shield that income from tax. For example, taxpayers can claim deductions for charitable contributions, mortgage interest, and state and local taxes. These deductions encourage people with high incomes to do certain things, like investing.
Which brings us back to Adam Smith and Wealth of Nations. We call it capitalism because it SHOULD be about growing capital. When investors reinvest their profits in the means of production, the economy (and their personally capital wealth) grows. This is why true capitalist like Charles Koch and Warren Buffet don’t live abstentious lifestyles but rather constantly reinvest their wealth. By creating new factories (like Koch does), developing new technologies (like Edison did), lending money to companies so they grow (like Buffet), or donating to charities (like Gates), while still achieving goals. The slight nudge the tax code provides encourages those without the insights these men have, to follow that lead. When the capitalist grow their capital assets, the economy grows (what Reagan and Thacher liked to call “trickle down economics”). When they simply spend it (no matter what sort of ass you place on it a golden toilet is not an asset!) the economy shrinks.
So, as we enter this election season, don’t be fooled by the rhetoric. Taxes aren’t bad they are just tools used to provide for the common good. Higher taxes for the rich isn’t retribution, its encouragement for them to invest rather than squander their wealth. If we “make corporations pay their fair share,” most will not pay more taxes, they will, however, invest more in industries, businesses, and employees, creating a stronger economy for all.
It’s called Capitalism!
Remember, Elections only come periodically. We will get past this one and EVENTUALLY, back to normal. In the meantime, relax, have a beer, and remember that true patriots VOTE their conscience not what they are told to vote!
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Michael Carver -- Historical Interpreter/Reenactor 