An oft-heard mantra these days from the Left is that we’ve got to reduce the disparity of income between the rich and the lower and middle classes. The “rich” simply make too much more money than the rest of us and that gap has to be reduced.

Mark Thoma, writing in the Fiscal Times, recently penned an article entitled, “Why US should spread the wealth,” that suited MSN’s philosophy closely enough to be linked from their homepage.

“We hear that raising taxes is unfair and that tax increases will harm economic growth. But there’s nothing unfair about correcting the maldistribution of income that we’ve seen in recent decades, or about making sure the burden from paying taxes is more equitable than it is now.”

This is quite an astonishing article. It is amazingly honest and revealing of the Left/Socialist mindset that puts “fairness” and “equitability” above individual achievement and entrepreneurship.

At the heart—the very core—of the matter is this question: Does the increasing success of the “rich” in recent times actually detract from and reduce the standard of living that the lower- and middle-class aspire to? Put another way (perhaps a bit more colloquially), does Bill Gates’ (or Steve Jobs’ or Warren Buffet’s or Derek Jeter’s) personal financial success take food off my table? If the Derek Jeters in this country made $2 million less per year, would that translate directly into my being able to afford steak instead of meatloaf?

When Thoma speaks of “correcting the maldistribution of income,” what, exactly, is he talking about? What is the economic device by which greater monies will be directed into the bank accounts of lower-income individuals if taxes are raised on the wealthy? How will that come about? Is he actually proposing that the U.S. Government cut checks for people below an arbitrary income level funded by the increased taxes on individuals making more than an arbitrary amount?

If Thoma is not advocating direct Government payments, then it’s hard to discern his point, other than empty, envious carping about others’ success.

Certainly, his argument for raising taxes can’t have anything to do with reducing our national debt. Economists from both sides of the aisle—while they disagree in the details—agree that fundamental debt reduction is not attainable by raising taxes on “the wealthy” alone. There are simply not enough of them, the marginal dollars involved by increasing their taxes don’t put a meaningful dent in the national debt, and millionaires’/billionaires’ income tends to be too unpredictable and unrepeatable a source (income from movie receipts, album sales, non-recurring real-estate sales, etc.) on which to reliably base a debt-reduction strategy.

Debt reduction depends on fundamental Government spending reductions, and the increased tax receipts from a dramatically-broadened tax base that will result from an improved economy with sharply higher employment. It’s millions of people paying income tax on $50,000 salaries that will sharply increase Government revenues—not raising punitive taxes on 10,000 “millionaires.”

OK.

So if we assume Thoma is reasonably well-informed and has read and understood the same economic tax data that both Democrats and Republicans agree on, what is behind his call for increasing taxes on the wealthy?

Implicit in his article is the unmistakable notion, common to all Leftist/Socialist-minded people, of the finite-sized economic pie. That theory states that the amount of economic wealth is stagnant, constant, and not apt to grow in the near term. Therefore, an equitable and just society divides up that finite pie into shares that enable everyone to live at a minimum-guaranteed acceptable level. If a person requires “3” as a humanely-justifiable minimum and the rich have “8” in a 10-sized pie, then you take 1 from the rich and give it to the class that only has 2, thus raising them to “3.” The rich won’t miss the 1, the lower class is now at 3 and everyone’s happy.

The problem with this theory is that onerous taxation and excessive Government regulation and interference in a free-market economy usually reduces the pie from 10 to 9. Now the rich only have 7 and the lower class still only has 2. No one’s happy. That’s where we are today, as the number of people living below the poverty line has increased sharply under Obama.

Conservatives/free-market advocates reject the finite pie paradigm. They say a successful free-market economy that puts a premium on innovation, risk-taking and the profit motive, will increase the size of the economic pie, even in the near term. When the pie goes from 10 to 11, the rich still have their 8, and the lower-class can have its minimum-requirement of 3, with the promise and potential of even more tomorrow (as the pie goes from 11 to 12). Now everyone has the opportunity to be truly happy—without depending on the Government.

The Occupy movements (with their plaintive, hypocritical bleating about “corporate greed”) unquestionably adhere to the “finite pie/give me theirs” philosophy. The Occupiers are not espousing hard work, individual responsibility, entrepreneurship, or personal economic creativity. Instead they are saying spread around some of “theirs” to us and forgive our debt—at your expense.

President Obama’s policies may reduce the pie from 10 to 9, but he seems determined to bring the lower class up to 3 by any means necessary. And furthermore, he looks as if he intends to make the bringing from 2 to 3 a political virtue on which to base his re-election.

The Republican candidates should frame this issue in clear, easily-understood terms (highlighting the attendant benefits that result for everyone when the pie goes from 10 to 11 and beyond) and not let the Democrats (and their liberal MSM cheerleaders) take the PR initiative away from them, as they usually do.

Comments

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  • The Gallant Gallstone

    Steve M has handled the nonsense in the OP too effectively. The matter of “maldistribution” and the criticism of the “expanding pie” theory will probably have to be ignored. My only criticism of the Steve M response is that he fails to consider the daunting military expenditures.

    It’s not that the government spends too much, it’s just that the government doesn’t spend properly.

    If I were to suggest that we set aside $440 billion dollars to help subsidize college education for American students, I would be considered some sort of Bolshevik demon, freshly emerged from the unholy abyss.

    But we spent about that much in Afghanistan; not just paying for our troops and their equipment costs, but also for subsidizing corrupt politicians and warlords.

  • Joyce A (East of Eden)

    If the tax system were truly fair ALL people would be paying taxes no matter what. Also, Steve is right in his position: the government spends too much. We’ve been conditioned by this government to think that society “needs” all that government provides and that is false. Just because some one has been sucessful, does not mean they have done that at the expense of another person.

    Steve, this was a great post.

    • dw

      You mean, like… the FairTax? :-)

      • Joyce A (East of Eden)

        I’d acutally prefer a flat tax. Everyone pays 10%, no matter what, no deductions, no loopholes, the end.

        • Steve M.

          Joyce … the problem with a “flat tax” is the burden is anything but flat. If someone works 2 minimum wage jobs with a stay-at-home-wife (because child care is almost universally more expensive than another minimum wage job) and two kids … the entire family makes $30,160 for the year, paying $3,016 for the year, taking home $27,144.
          A person making $120,000 a year would pay $12,000 making $108,000. This
          burden is anything but equal, even if the rate is. That’s why we have a progressive income tax.

          • dw

            The FairTax is much better than a flat tax. You are only taxed on NEW goods that are purchased (ie consumption tax). You purchase lots of new things, you will be paying more taxes. You purchase a lot of used things, you’ll pay a lot less in taxes. Income, number of jobs, legal status – none of those make any difference.
            .
            See http://www.fairtax.org before you even think of replying with questions, arguments, etc.

  • Steve M.

    Let me answer a number of your points…
    First, the Mark Thoma quote is that you cite very telling, as is your spin on it. Thoma is calling for an equitable burden from paying taxes. Because of the excesses wealth of some and needs of others, an equitable tax rate (Flat Tax) is not an equitable tax burden. This is not socialism, but the foundations of a progressive income tax.
    Second, regarding the vehicle for correcting the maldistribution. You, in this post, say that taxing the rich alone will not be able to decrease the federal debt, we must cut government spending. Most government spending goes toward some social safety-net programs; when you cut those the poor are effected most, if not entirely. So, but raising taxes on the rich, the cuts to these programs can be reduced, thus helping to fix (not fixing) the maldistribution of wealth.
    Thirdly, your other solution to the federal deficit problem is a broad expansion of the tax base — however I’m not sure where all of these $50,0000 salaried jobs are coming from and until they do, are we supposed to sit and deal with a maldistribution?
    Finally, all “Leftist/Socialist” minded people do not accept the theory of the finite pie. A number of things Occupy Wall Street and Paul Krugman, among other people, including myself, have an issue with are:
    1. The paradigm (that many on the right accept and defend) that every time someone rich gets richer, it is the pie expanding.
    2. The fact that it seems that as the pie gets bigger, the people with the smallest piece, don’t get any of the expansion. The left rejects, not an expanding pie, but the idea that the expanding pie is necessarily good for everyone. What OWS and others protest is that as the pie got smaller in the recession, the people with the smallest slice lost theirs, but it seems as the pie gets bigger and bigger — only the biggest slices get bigger.
    3. Yes Obama is determined to bring the 2s to 3s if 3 is what is necessary for a humanely-justifiable minimum and yes sometimes it is OK for the pie to shrink so that the lowest can get to a humane level at the expense of those at the top.