Redistribution of Wealth

Rebuttals “FDR imposed tax rates of 90% and America’s economy was fine!” [1] The post-World War II era was an irregular situation in world history. The United States was an economic superpower, producing 1/3rd of global output [2]. The major nations such as Germany, Japan, the United Kingdom, and the Soviet Union – all were facing economic devastation. The United States had global economic hegemony, and the excessive tax rates – while harmful – were not painful enough to destroy America’s unique position. Also, the revenue system was entrenched with tax loopholes, which significantly reduced the effective marginal tax rates on the wealthy [3]. Furthermore, your argument doesn’t consider the impact of factors such as tremendous post-war savings and investment [4], the GI Bill, the deregulation of product and factor markets, and the reduction of the federal debt. So, you’re “post-WW2 argument” fails to hold water because: (1) The USA lacked global economic competition (2) Effective taxes were significantly lower (3) The economy thrived from different factors -------------------------------------------------------------------------------- R1: High Taxes are Immoral I utilized the terms “excessive” and “slight” simply as broad adjectives; I agree that how these adjectives are used is a subjective decision, but most people would agree that rates such as 90% would be “excessive”, while a rate of 5% would be “slight”. Unjustified Taxation The philosopher John Locke crafted a vision that the government’s singular function was to “protect people’s natural rights… those being the right to life, liberty, and property”. In fact, Locke’s philosophy was the foundation of the American government. When the government taxes individuals and redistributes income to different individuals, it fits the definition of theft. The definition of theft is "the removal of property through force", and redistribution fails to improve the common good, and instead simply deprives some for the benefit of others. Productivity and Wages Each worker's wage is linked to their marginal productivity. An individual's marginal contribution to the value of output is reflected in the worker's wage. This theory is almost universally accepted by economists [5] [6]. Therefore, the market's income distribution is fair, because people receive "wages that equal the value of their contribution to the economy's output" [6]. When the government redistributes income, it is depriving taxpayers of their earnings -- effectively discouraging them from being productive workers -- and rewarding the less productive workers. -------------------------------------------------------------------------------- R2: High Taxes are Shortsighted First, your arguments about the "giant corporation" have no evidence to substantiate your claims. Now I'll show why higher taxes are bad. The President's Council of Economic Advisers have stated that every $1 in tax revenues corrodes the economy by $1.50, after including compliance costs [7]. The University of California in Berkeley provided empirical evidence that shows $1 in tax increases reduces the economy by $3 [8]. The National Bureau of Economic Research has provided large swaths of empirical data showing that "tax[es] [are] an obstacle to the growth of small businesses." Indeed, a 17% reduction in marginal tax rates was simulated to increase business size by 28% [9]. Furthermore, high-income taxpayers provide the savings and investment which fuels economic growth. The productive output the wealthy contribute fosters economic development... (1) their incomes spent on consumption generates demand that reverberates throughout the economy, (2) their savings are invested to grow small businesses (through financial securities), and (3) their funds which are invested through venture capitalism foster entrepreneurship, innovation, and R&D. Therefore, higher taxes are shortsighted: (1) Higher taxes will significantly reduce America's economy (GDP) and produce inefficiency (2) Higher taxes will kill jobs and middle-class livelihoods (3) Higher taxes will corrode entrepreneurship and small business growth (4) Higher taxes will diminish America's global competitiveness -------------------------------------------------------------------------------- R3: Redistribution Distorts Incentives Labor earnings are equivalent to their marginal productivity (see my first argument). The highly productive and skilled workers are paid well, while the uneducated are not. The market pays people fairly because they receive what they contribute to the economy. If we redistribute incomes, the whole system of incentives is altered. The government will discourage individuals from improving their education and from investing in innovative, new products. The government will instead encourage low productivity and idleness. Indeed, because income subsidies will fall as incomes rise, the payoff of higher wages will be shortcut. This is already the case, as implicit marginal tax rates (from welfare programs) sometimes make higher wages less advantageous. This system of incentives is terribly unhealthy for both the economy and America's culture. The culture of hard work and thrift will be damaged, and consequently, the economy will become grossly inefficient. People will become dependent on different people's income (production), and a culture of idleness will envelop among a segment of low-income workers, who will see living off the taxpayer's back as a better alternative than low-income jobs.Pro fails to explain why the successful and hard working taxpayers should sacrifice, even though they made the correct economic decisions in life.The poor will be encouraged to stay poor. The rewards from higher education and hard work would be eradicated. -------------------------------------------------------------------------------- R4: Low-Income PeoplesExpanding Opportunity The accurate poverty rate is approximately 2% [9]. To be concise, material poverty "has been largely eradicated". Indeed, the bottom 5% of American citizens earn more than 95% of Indian citizens. The United States economy provides vast opportunity for citizens to climb the income ladder and earn a comfortable living. As I showed earlier, typical high school graduates earn enough to sustain themselves. The type of material poverty you visualized only exists because of behavioral choices, and therefore is the result of individual choice, not society's err. The market economy is the strongest engine for economic development and job growth in human history. A vibrant free market will generate the opportunities for all Americans to pursue their dreams and fulfill their livelihoods by earning an honest living, while also building a healthy economy. The pictures above also serve to validate this fact.Improving People's Wages The value of total production equals the value of incomes received throughout an economy [6]. Therefore, a healthy economy has growing productive capacity. The growth in GDP is very dependent on private investment, the majority of which is supplied by the wealthy. Thus, the high-income Americans provide the investment capital which serves to increase real wages throughout the economy. If we redistribute incomes away from the wealthy, this stream of funds will halt. Incomes will stagnate (contrary to popular beliefs, incomes have been rising with productivity, but employee benefits have supplanted earnings increases [11]). This picture shows that the vast majority of income for low-income Americans are from earnings. If we destroy the investments which increase overall productivity levels, it could very well harm the poor, in the form of reduced capital levels.-------------------------------------------------------------------------------- Conclusions The vast plethora of Americans have a choice of their future. Those who graduate "high school, [are] married, had no more than two children, and worked full time" have a trivial poverty rate of 1%" [10]. Therefore, people should be free to pursue their dreams and make their own decisions. That is the essence of freedom that forms the foundation of America itself. Redistribution of incomes has a wide array of consequences, and could very well increase poverty, due to the distortion of incentives.Furthermore, if the government wants to augment the earnings among low-income peoples, it should promote productivity growth and capital accumulation, which would benefit everybody. So the consequences of redistribution include these: (1) A significant reduction in America's economy (2) A large increase in unemployment and industry underutilization (3) A reduction in entrepreneurship, innovation, and R&D, (4) A distortion of vital economic incentives and associated economic imbalance (5) A shattering of U.S. global competitiveness (6) A massive theft from the productive to the low-income classes -------------------------------------------------------------------------------- "The more subsidies you have, the less self-reliant people will be." - Lao-Tzu -------------------------------------------------------------------------------- Sources: [1] Paraphrased [2] (http://economix.blogs.nytimes.com...) [3] (http://flaglerlive.com...) [4] Gordon, John. An Empire of Wealth. 2004. 349-381. Print. [5] (http://www3.nd.edu...) [6] Browning, Edgar. Stealing From Each Other. 2008. 4-9. Print. [7] (http://eml.berkeley.edu...) [8] Economic Report of the President (2003), p.77. [9] (http://www.forbes.com...) [10] Sawhill, "Behavioral Aspects of Poverty," p. 83. [11] Reynolds, Arnold. Income and Wealth. Greenwood Press, 2006. 64. Print.