An Argument For a Progressive Income Tax

If you want to initiate a heated debate anywhereLibertarians and capitalists are fond of quoting
in the United States, all you have to do is mentionJohn Locke as evidence governments shouldn't
income taxes. Everyone has an opinion rangingintervene in the lives of the individual through
from one extreme to another: the Socialist wantsincome taxes. Locke wrote, "...every Man has a
to tax the wealthy and middle class until they areProperty in his own Person. This no Body has any
as poor as everyone else; the Capitalist says no,Right to but himself. The Labour of his Body, and
we need a simple flat tax; and the Libertarianthe Work of his Hands, we may say, are properly
says you're all wrong; if we eliminate all inefficienthis." (Locke 287,288) But government taxes
government programs, we won't need anyaren't the only means of confiscating what is
income tax. In spite of this diversity in opinion,properly ours. Business owners, in the name of
nearly everyone thinks the tax code is far tooprofit, also take a piece of our labor. Any
complex and must be simplified no matter theeconomist will tell you there are two kinds of
cost. Regardless of political ideology, findingprofit: normal profit and economic profit. Normal
someone who is truly satisfied with our currentprofit is the return received from the labor and
income tax laws is extremely rare. However, agoods, including capital, that a business owner puts
realistic look at the facts indicates we do needinto and provides for his business. The owner
some type of tax system to fund necessaryearns the normal profit. The economic profit is
government services and a progressive incomethe gross receipts less all costs, including normal
tax is the fairest and least complex method toprofit, that a business incurs. All economic profit is
raise the required funds.earned from someone's labor. Of course, some of
The first important question is whether or not wethe economic profit can result from the owner's
need an income tax. Hard core capitalists andlabor, but, in reality, most of the economic profit
libertarians would have us believe that the privatecomes from the labor of the employees,
sector can provide all the services we need, withespecially in the modern corporation where the
the exceptions of national defense and protectionowners are usually not employees of the firm.
of our constitutional rights, "better and cheaper"When a business shows an economic profit, it is
than our government. (Libertarian 1,2) They wouldconfiscating part of what Locke said properly
have us believe that government services,belonged to the one who produced the good or
programs, and regulating agencies areperformed the service.
unnecessary and even harmful to our economy.The higher your income and the larger your net
This belief simply denies our history and fails toworth, the less likely you are to have earned
recognize why our federal government institutedyour wealth from the sweat of your brow and
the social programs and regulations in the firstby only your own labor: enormous net worth is
place. As ineffective and counterproductive as ourmost likely earned through confiscating a piece of
government may be at times, a brief study ofthe labor of many others through economic profit.
history proves the ramifications of unrestrainedA progressive income tax simply returns some of
business are even worse. One need not travel farthat unearned wealth back to its rightful owners
back into our history to realize that our quality ofthrough government benefits and services.
life, from working conditions to pollution, wasThose who think that our tax system is too
hardly utopian when there were fewercomplicated frequently want a flat tax in order to
government regulations and social programs. Thesimplify the system. But the number of tax
federal government didn't pass child labor laws,brackets is not what complicates our income tax.
pollution regulations, minimum wage laws, andThe IRS can construct tax tables to
workplace safety regulations just to hamperaccommodate any number of tax rates. Figure
business.your income, look up your income on the tax
Barber Conable, who served for many years as atables and there's the tax you owe. What
Republican leader on the House Ways and Meanscomplicates our taxes are the many preferences,
Committee, said, " As a former Congressman, Icommonly called loopholes by those who don't
can tell you that people are always writing to theirqualify for the preferences, which have gradually
legislators to say there ought to be another lawbeen instilled into our tax code. Conable states,
to do this or that. They are always suggesting"Congress wasn't trying to complicate the
new ways in which government should be useful."process. It was simply trying to be responsive to
(Conable 94) In other words, these laws anda tremendous diversity in sources of income and
regulations were enacted because of perceiveddifferent circumstances of taxpayers." (Conable
failures and deficiencies in the private sector.41) He believes, "Preferences are... a form of
These laws were passed because constituentsproblem solving. They are a way to encourage,
felt there were problems that needed to bethrough incentives, some investment by the
corrected and private enterprise wasn't about toprivate sector in areas for which Congress is
correct the problems because it wouldn't be inunwilling to appropriate money." (Conable 101)
their best interest to initiate actions which wouldIndividually, the preferences were all legitimate
increase their costs without also increasing theirattempts at creating a more equitable system of
revenue.taxation intended to achieve goals that would
We wouldn't necessarily save money if webenefit society, but collectively they have created
eliminated many of our government programs,a monster of enormous complexity. The tax code
we would just change who received our moneyis a fantastic tool for social engineering, but the
or, in some cases, we would increase our risks.price is a complex system of tax laws. We can
Eliminate the Food and Drug Administration andsimplify the system by eliminating the loopholes,
you better study hard in biology and chemistrybut a flat tax in itself will not simplify the system.
because it is going to be up to you to determineNot everyone thinks the tax code should be used
if that steak is safe to eat and what adverse sideto achieve desired social aims through tax
effects that new drug may inflict upon your body.preferences. Stanley Surrey was a Harvard Law
Of course, if you are wealthy you can alwaysSchool professor who believed "... our income tax
send your steak and pills to a private lab to besystem should be used only to raise revenues
tested but it's going to cost you because theyand that the rate of taxation should be highly
want to produce an attractive bottom line. And ifprogressive." Surrey felt that tax preferences
you can't afford a lab test? Oh well, just take"...eroded revenues otherwise available to the
your chances. Want to drive from New York togovernment." He wanted to simplify the tax
California? Better take along a huge stack ofsystem and he thought the wealthier taxpayers
change because those toll roads are going to takeshould shoulder a proportionally higher cost of
some money out of your pocket for each andgovernment operations. (Witte 8)
every mile you drive; the same tolls will beSurrey was not alone in his call for progressive
charged whether you are rich or poor. Althoughtax rates. Henry Simons was a professor of
our public schools may not be the best, they stilleconomics at the University of Chicago who
provide a basic education to even the poorest ofbelieved that "...the prevailing inequality of income
children who have the desire to learn and improveand wealth was unjustified in terms of merit and
their position in life. Eliminate our public schools andthus inappropriate, and that the tax system was
you can rest assured that many of the poor willthe most convenient vehicle for altering the
be denied an education simply because theysituation." (Witte 49, 51) Simons said, "The case
cannot afford the private school. Our federalfor drastic progression in taxation must be rested
government provides necessary services,on the case against inequality- on the ethical or
programs, and infrastructure for the benefit of allaesthetic judgment that the prevailing distribution
regardless of one's ability to pay. The privateof wealth and income reveals a degree... of
sector wouldn't: they would only be provided toinequality which is distinctly unlovely." (Witte 51)
those with the ability to pay the price and theWhile capitalists and libertarians are fond of citing
price will always aim to include a profit.Adam Smith's single reference to "the invisible
The libertarians would have us believe thathand" in The Wealth of Nations, they fail to
eliminating most of our government agencies andmention that, in the same book, Smith also said,
programs would give individuals more control over"The subjects of every state ought to contribute
their lives. But the libertarian argument thattowards the support of the government, as
government services should be provided bynearly as possible, in proportion to their respective
private business is really not an argument aboutabilities; that is, in proportion to the revenue which
someone having control versus no one havingthey respectively enjoy under the protection of
control over our lives. It is really just an argumentthe state." (Book 5, Chap.2, Pt. 2)
about who is in control. We can have control byWere Surrey, Simons and Smith radical socialists
elected officials who must face periodic electionsdemanding equality for all? No, they were simply
or we can have huge international corporations,concerned with a degree of morality and fairness.
who need to answer to no one but the wealthiestThey realized societies and economies function
of stockholders, in control. Either way, somebetter when there is a degree of balance in the
entity will be in control and running aspects of ourincome and wealth among the citizens. In the case
lives, directly or indirectly.of Smith, a classical capitalist of tremendous
Without government regulations, the largeinfluence, some balance in income and wealth was
multinational corporations would control much ofbelieved to be essential to capitalism itself. In his
our lives and most of us would find the situationview, capitalism works best when there are many
worse than the current level of governmentalfirms producing a particular product or service.
control. Business entities would control the lengthIdeally, there should be so many producers that
of the work week and the size of our paychecksno single producer can control enough of the total
without any restraint on how low the pay couldoutput to have any effect, regardless of its
be or how long we would have to toil in order toactions, on the price or availability of the product
earn the measly compensation. Withoutor service. Due to the success of some firms and
unemployment insurance, laid off workers wouldthe accumulation of wealth, we no longer have
be forced to take a job, any job, in order tocompetitive capitalism in most industries of the
survive. Competition for jobs, if governmentUnited States. Instead, we have what economists
employment was eliminated, would ensure acall oligopolies where few firms control a market.
decrease in wages due to increased competition.The Fortune 500 consists mostly of oligopolies.
It's a fallacy that the jobs would merely move(Gottheil 208) We live in a world where more and
from the public sector to the private sector. Manymore of the production and wealth are controlled
services that our government now providesby fewer and fewer firms and individuals. A
wouldn't be provided by business in a totallyprogressive income tax simply brings the playing
unregulated free-market economy. Some servicesfield a little closer to level.
would simply be unprofitable and others, likeAn economic goal, "widely accepted in the United
welfare for the needy, would be impossible toStates" is the principle of "equitable distribution of
duplicate in the private sector with the sameincome." (McConnell 9) In 1967 the top 20% of
reliability as the public sector. After all, if privatehouseholds earned 43.8% of our nation's total
charities had really been successful in feeding thehousehold income. By 1998, that figure grew to
hungry and housing the homeless, there never49.2%. In contrast, the bottom 20% of
would have been constituents demanding theirhouseholds earned 4% of the total income in
government take action to protect the most1967 and only 3.6% by 1998. It is no illusion: the
basic human rights of the those doing withoutrich are getting richer and the poor are growing
life's basic necessities.poorer. (Jones 4) The situation is even worse if
The expenditures of the Federal governmentyou consider the distribution of financial assets. In
have always had a major impact on our1998 the wealthiest 5% of households held 57.2%
economy. Our government has been in debtof the total wealth held by all households; the
continuously since 1791. (Historical 1117, 1118)poorest 25% held -0.2%. The richest 5% owned
Attempts at paying off the debt, that is, running81.6% of all stocks owned by households; the
budget surpluses, has preceded six major periodspoorest 25% owned 0.0%. (Bertaut 30)
of economic depression this nation has witnessed.A progressive income tax, and taxing all sources
The United States suffered depressions andof income at the same rates, is the most logical
financial panics in 1820, 1837, 1857, 1869, andand convenient method to keep a reasonable gap
1893. (Davis) After World War I our federal debtbetween the rich and poor and keep the spirit of
stood at $25,484,506,000. By 1930 a decade ofcompetitive capitalism alive and functioning in the
balanced budgets had allowed the debt to drop tomanner intended by the classical economists. In
$16,185,310,000 (Historical 1117) and we wereThe Theory of Moral Sentiments, Adam Smith
entering what became known as the Greatsaid "The wise and virtuous man is at all times
Depression where the Gross National Product fellwilling that his own private interest should be
from $103.1 billion in 1929 to $55.6 billion in 1933.sacrificed to the public interest of his own
(Historical 224) During and after the Greatparticular order or society. He is at all times willing,
Depression, the federal government took moretoo, that the interest of this order or society
control over our economy out of necessity.should be sacrificed to the greater interest of the
Elected officials, for the benefit of the citizens,state... of which he is only a subordinate part. "
wanted to put an end to the periods of(346) While absolute economic equality among all
depression that were considered normal in theis neither a logical nor desirable goal, it is in the
unrestrained capitalist market. For over 60 years,public interest to aim for reasonable levels of
they have been successful. The recessions sinceeconomic inequality. It is in the public interest to
World War II have been mild compared to theensure that all humans have access to the basic
economic downturns of the 19th and early 20thnecessities of life. It is in the public interest to
centuries: a direct result of increased governmentensure that all citizens have access to education
intervention in our economy.and health care. Policies that are intended to
If we can establish that the federal governmentachieve these goals are in our public interest, from
has economic and social responsibilities to theboth a moral as well as practical point of view.
citizens, we can agree we need some method ofHealthy, well fed, and well educated citizens lead
financing the required government services andmore productive lives and that bestows benefits
programs. Most of us agree that we do need anon the entire society.
income tax, but disagree on how the tax shouldFreedom for the largest majority in any society
be structured.requires that financial power be relatively equal.
Many capitalists prefer the flat tax, one tax rateThat is a proper goal for not only the socialists
for all regardless of income. According to capitalistbut the capitalists and libertarians as well. A
theory, this would allow the wealthy to keepprogressive income tax is the simplest and fairest
more of their money so they can invest it andmethod to achieve that goal.
finance further economic growth. The increasedLibertarian Party Brochure.
economic growth provides new jobs and additionalU.S. Department of Commerce, Bureau of the
income which can be taxed, leading, ultimately, toCensus.
more taxes taken in by the government at theHistorical Statistics of the United States, Colonial
lower rate: good old supply side economics comingTimes to 1970. Bicentennial Edition.
to the rescue. Make the rich richer and the wealthDavis, Kennneth C. Don't Know Much About
will trickle down and we all benefit. This soundsHistory. New York: Avon Books, 1995.
good in theory, but the realities of the investmentMcConnell, Cambell R. , and Stanley Y. Brue.
world don't always work in the intended manner.Economics. 14 ed. Boston: Irwin/Mcgraw-Hill, 1999.
If the wealthy take their savings from lowerGottheil, Fred R. Principles of Economics . 2nd ed.
taxes and buy an existing factory or business,Cincinnati: South-Western College Publishing, 1999.
they create no new jobs. They just own andSmith, Adam. The Wealth of Nations.
control more of our nation's financial assets thanJones, Arthur F. Jr., and Daniel H. Weinberg. The
they already do. If they take their increasedChanging Shape of the Nation's IncomeDistribution.
capital and buy existing houses for rentals, noU.S. Department of Commerce, U.S. Census
new jobs are created; no new wealth is broughtBureau, June 2000.
into the economy. But the increased competitionBertaut, Carol, and Martha Starr-McCluer.
for houses can drive up the price of homes,Household Portfolios in the United States. Federal
forcing lower income families out of the housingReserve Board of Governors, April, 2000.
market and into the rentals owned by the alreadyConable, Barber B. Congress and the Income Tax.
wealthy. They can stick their extra money fromUniversity of Oklahoma Press, 1989.
lower taxes into gold and, once again, theWitte, John F. The Politics and Development of
economy doesn't benefit: the price of gold simplythe Federal Income Tax. University of Wisconsin
rises. Additional money in the pockets of thePress, 1985.
wealthy can lead to economic growth andLocke, John. Two Treatises of Government. Ed.
additional jobs, but there is no economic law thatPeter Laslett. Student Edition. Cambridge
says it has to or that it always will. Supply sideUniversity Press, 1988
economics didn't work during Reagan'sSmith, Adam. The Theory of Moral Sentiments.
administration and it's not going to work now.Amherst, New York: Promethus Books, 2000.