Sunday, November 2, 2008

Ignorance abounds in the discussion of U.S. tax system

Previously published in the Terre Haute Tribune Star, November 2, 2008

Are Americans so dumb that they don’t realize that any tax is “redistributive?” Don’t Americans know that we have had a progressive income tax for nearly a century? What do they teach in high school these days? How about college?

The 16th Amendment to the Constitution (something our presidents are sworn to defend) legally established the federal income tax and shortly following ratification in 1913, upon our entry in World War I, responsible leaders introduced a “graduated” or “progressive income tax” to pay for the war (unlike how we funded the Iraq war). The lowest rate was 1 to 2 percent with a top rate of 15% on individuals who earned more than $1.5 million. The progressive income tax has been with us ever since.

Ronald Reagan began to curb it, to reduce the progressivity of the tax structure. Today, we have the spectacle of politicians suggesting that a progressive income tax is somehow “un-American” or “socialist.” Some believe the idea for the progressive income tax came from none other than Adam Smith, a well known “socialist” to be sure. From Smith’s An Inquiry into the Nature of and Causes of the Wealth of Nations: “It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.”

If Americans knew their own history; if they knew even how American institutions worked, just a basic sense of how public goods like schools, police, roads, prisons, fire houses, libraries and our courts were financed then we’d be discussing a completely reasonable question: is now the time to introduce more progressivity into our tax structure or not? Or, even, has the time come to flatten the progressive income tax?

Instead, we have regular Americans parading their ignorance. For instance, as reported in the 10/16/08 Dallas Morning News the Krajewskis from Albuquerque said they didn’t like the idea of subsidizing others. Do you mean like the students at the University of New Mexico? Or a local Albuquerque community college? Or maybe public elementary school students? How about police protection? Should that only extend to taxpayers? Or people “willing to work” (the unemployment rate there is right at 5%.) Twelve percent of Albuquerque’s population is 65 and older, collecting Social Security, which is an income transfer from younger workers to retirees—a subsidy. I am sure these informed citizens object to the $28 billion spent on food stamps. Do they object as much to the agricultural subsidies and other corporate welfare that amounts to $96 billion a year according to the conservative CATO Institute?

There have been attempts to do away with the progressive income tax. Steve Forbes ran for the Republican nomination for president in 1996 and in 2000 on his flat tax idea. He didn’t win and his idea didn’t make it to the Republican platform. Others have called for a national sales tax to replace the income tax, a value added tax, and other ideas. But so far, none have even come close to replacing the tax system that has served the US to pay for World War I, World War II, Korea, and Vietnam.

At its outset, there were those who claimed this system was socialism, communism, even ‘devilism,” but the system has served us pretty well. Nevertheless, serious discussions about income taxes around issues of fairness should never be categorically dismissed. Things are different today than in 1913 and maybe the tax system no longer serves the public interest.

I am exasperated with the stupidity that equates an income tax with socialism. And yes, that makes me an elitist. I do think that people should know something of what they speak, especially when there is so much information available at the tip of our fingers through the Internet. We have the most educated populace in the world, we should expect more of them. Instead, we make a virtue of being dumb and uninformed as a post. We have abandoned the responsibility of being informed about the choices we make! This is outrageous, sad, and dangerous because democracy requires an informed citizenry, which we no longer seem to have.

One last blast at the ignoramuses: With the socialist revolution in 1959, Cuba abolished its income tax. A graduated income tax was introduced in the mid 1990s amid a liberalizing of the socialist economy due to the collapse of the Soviet Union. Changes viewed as moves toward free markets.

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