Socialism will cure the ills of society, or so the story goes.
Medicare for all, free education and cancellation of student debt, job guarantees, and even a universal basic income… all these entitlements and more are advocated by proponents of socialism in America today.
These breathless promises bring to mind old high school pep rallies where a candidate for student body president promises free lunches, less homework, and a winning football team. It sounds good in theory, but there is a cost involved.
To pay it, individuals like Bernie Sanders and Alexandria Ocasio-Cortez recommend progressive tax rates of up to 54% and 70%, respectively. This is justified, proponents say, by the increasing income inequality in the United States. The argument tends to be that the rich are obtaining an ever-increasing slice of the pie and, therefore, the poor are consequentially getting poorer.CARTOONS | AF BRANCOVIEW CARTOON
There are numerous problems with these tax plans. First, they do not offer a solution for our growing deficit, let alone the proposed entitlements. Ocasio-Cortez’s tax plan would raise only an additional $72 billion each year, according to Bloomberg’s Noah Smith. As Smith notes, “Wealthy people have eye-popping incomes, but there really aren’t that many of them.” When you consider that Ocasio-Cortez’s Green New Deal could cost anywhere between $51.1 trillion and $92.9 trillion over a nine-year period, it’s clear our deficit would be going in the wrong direction. And indeed, it already is.
Our national debt is now more than $22 trillion. It is projected to balloon to $28.7 trillion by 2029. Just 20 years ago, it was under $6 trillion. Continuing to pile entitlements upon entitlements will not solve our problem, it will worsen it.
I wrote recently about Sweden and its Nordic neighbors, and the generous government entitlement programs they offer. So how do these countries pay for these programs? Simple…everyone pays high taxes. As set forth in a 2015 article by the Tax Foundation, these countries raise a significantly higher percentage of their GDP than the United States, even though their marginal tax rate is close to (or in some cases lower than) that of the United States. Again, this is because their tax rates are fairly flat. The Tax Foundation provides this example:
“Sweden’s top marginal tax rate of 56.9 percent applies to all income over 1.5 times the average income in Sweden. Norway’s top marginal tax rate of 39 percent applies to all income over 1.6 times the average Norwegian income.
“Compare this to The United States. The top marginal tax rate of 46.8 percent (state average and federal combined rates) kicks in at 8.5 times the average U.S. income (around $400,000). Comparatively, few taxpayers in the United States face the top marginal rate.”
You can probably imagine why Bernie Sanders and AOC would shy away from telling the electorate that everyone would need to pay higher taxes in order to fund their ambitious entitlements. After all, a “free” lunch doesn’t sound so good if you have to pay for it.
Aside from the mathematical difficulties, there is a philosophical issue to consider. Do those with the most wealth have an obligation to fund entitlements for all and help “redistribute” that wealth? Politicians like Bernie Sanders and Ocasio-Cortez answer in the affirmative, arguing that a small percentage of individuals should pay a significantly greater share of taxes. Bernie Sanders has decried the fact that “the top 1 percent” possess 40 percent of the nation’s total wealth, and suggests that they therefore owe a duty to “pay their fair share.”
What Bernie often fails to acknowledge, as noted by Lee Edwards, is that the top 1 percent already pay nearly 40 percent of the individual income taxes.
We also should consider a more fundamental issue: should we focus on “redistributing” the existing wealth of this nation – that is, re-slice the pie we have – or should we focus on baking a bigger pie? Data demonstrates that our economy is dynamic, not static. In other words, free markets allow the entire pie to grow.
How else can we explain the reality, noted by Canadian psychologist Jordan Peterson, that between 2000 and 2012, “the rate of absolute poverty in the world fell by 50 percent.” Kay Cole James, the president of the Heritage Foundation, adds that “over the last 25 years, the spread of policies that promote economic freedom has cut the global poverty rate by two thirds.” Peterson adds, “the poor in the world are getting rich at a rate that is absolutely unparalleled in all of human history.” Accordingly, what it means to be poor in 2019 is very different than what it meant to be poor in 1919.
In other words, the rich are getting richer…but so is everyone else.
But the outcomes are unfair, some say. It’s true that our economic system allows for unequal outcome. But our founders did not endorse equal outcomes in this life, only equal opportunity. And while some have levied legitimate criticisms in regard to America’s historical fulfillment of its promise of equal opportunity, its elimination is not the solution. Rather, the continued promotion of equal opportunity must be our goal, for that is, as Winston Churchill said, “the strong and willing horse” that pulls America along.