356 online
 
Most Popular Choices
Share on Facebook 53 Printer Friendly Page More Sharing Summarizing
OpEdNews Op Eds   

Another Impractical Guide To Small Government

By       (Page 3 of 4 pages) Become a premium member to see this article and all articles as one long page.   6 comments, In Series: An Impractical Guide

Larry Butler
Message Larry Butler

   Like labor, for example -- yeah, let's put a big fat tax on labor to get rid of it!   But wait -- don't we want labor to be in high demand in our economy?   Apparently not, because we see that 37% of the federal budget is funded by a direct tax on labor.   The cost of Social Security and Medicare is borne largely by a tax on labor that equals about 15% of the income of an average American worker.   The economic effect of raising the cost of labor is to reduce the demand for labor as substitutes such as automation and outsourcing are exploited.   Increased unemployment is the inevitable result.   A tax on labor makes no economic sense at all.

   There is no comparable federal tax upon capital investment.   To be comparable, machinery, equipment, and real estate would have to be subject to direct taxation, separate and distinct from the income generated by such assets.   Although local authorities sometimes tax such investments, nothing at the federal level remotely approaches the scale of its direct tax upon labor.

   Look closer at what is not included in the definition of commodities.   Neither income nor wealth are commodities.   You cannot directly buy, sell, or trade income on a market exchange anywhere in the world.   You cannot directly buy, sell, or trade wealth on a market exchange anywhere in the world.   Income is what you have left after subtracting your costs and expenses from your revenues.   Wealth is what you have left after subtracting your liabilities from your assets.   As such, neither income nor wealth are subject to the laws of supply and demand.

*

   Okay.   So far we've agreed that it makes a lot more theoretical sense for government to be funded by taxes on wealth and income than it does to be funded by taxes on favorable commodities like labor.   But let's test the concept with some "what if" thinking.   What would be the long term result of America taxing labor in favor of capital investment for decades on end?   A tax on labor raises its price and reduces demand.   We would predict a surplus of supply -- unemployment.   Capital investment, meantime, would get a free ride and we would predict it to be overutilized and overpriced.   Consequently, income and wealth would concentrate among those who supply capital at the expense of those who supply labor.   Workers would be paid less as excess supply accumulates.   Structural unemployment cycles would become unmanageable through Keynesian fiscal policies, and federal budget deficits would mount.   Do we see these things around us?   All of these theoretical effects can be observed in the US economy today.

*

   But wait, there's more!!   About 62% of the federal government revenue comes from taxes on income.   Personal income taxes account for about 48% of revenues, and corporate income taxes account for about 14%.   Nobody likes income taxes, everybody feels that others are exploiting the system to their advantage, and everybody's right.   The income tax system is designed to appear progressive -- graduated to higher rates at higher levels of income -- but it contains within it significant elements of regressiveness.  

   Regressiveness in our beloved progressive tax system?   Yes, by design.   Income generated from capital -- specifically dividends and capital gains -- is taxed at a lower, more favorable rate than the same amount of income generated from labor.   In what distorted universe does this make sense?   If there was ever a practical reason for this, it's been lost over decades of our blind faith in the twin deities of wealth and investment. But there is a valid political reason -- the highest incomes in America consist disproportionately of dividends and capital gains.   Inevitably, therefore, wealth will accumulate even further among those who invest their capital at the expense of those who invest their labor, and that's a matter of public policy rather than luck.

Next Page  1  |  2  |  3  |  4

(Note: You can view every article as one long page if you sign up as an Advocate Member, or higher).

Must Read 1  
Rate It | View Ratings

Larry Butler Social Media Pages: Facebook page url on login Profile not filled in       Twitter page url on login Profile not filled in       Linkedin page url on login Profile not filled in       Instagram page url on login Profile not filled in

Thirty five years as a small business consultant, CFO, and university educator specializing in quantitative business and economic modeling - a suite of experience now focused on economic inequality. Carefully attributed data, thoughtful (more...)
 

Go To Commenting
The views expressed herein are the sole responsibility of the author and do not necessarily reflect those of this website or its editors.
Writers Guidelines

 
Contact EditorContact Editor
Support OpEdNews

OpEdNews depends upon can't survive without your help.

If you value this article and the work of OpEdNews, please either Donate or Purchase a premium membership.

STAY IN THE KNOW
If you've enjoyed this, sign up for our daily or weekly newsletter to get lots of great progressive content.
Daily Weekly     OpEd News Newsletter

Name
Email
   (Opens new browser window)
 

Most Popular Articles by this Author:     (View All Most Popular Articles by this Author)

The Beginner's Guide to Pissing Off Conservatives

The Myth of Liberal Media Bias

Social Darwinism and Fox Republicans

Why Liberals Lose - The structural flaws in the foundation of American democracy

To Kill Our Elders

Myth #17: We're Number One!

To View Comments or Join the Conversation:

Tell A Friend