A Giveaway to the Rich they Say

The reaction of progressives to the passage of the recent tax bill tells you all you need to know about what progressivism is really all about. The tax bill is, they repeat endlessly “a giveaway to the rich and to big corporations”. Let’s think about that for a moment.

It is, or ought to be, glaringly obvious that to give something away you have to own it to begin with. So, what progressives are really saying is that the state owns all of your income except for what it allows you to keep. And let’s not kid ourselves about this. It is what they truly believe.

The point of taxation is supposed to be about financing legitimate government activities—like the production of public goods, the classic being defense. And there are other public goods like the highway system, public health, and the courts to name a few. But by and large, that is not where the federal government concentrates its efforts. The focus of the federal government is on income redistribution. The numbers are published by the Office of Management and Budget. They can be accessed at this link:


Progressives can pretend all they like that they can achieve some sort of optimal income distribution, but it is impossible. It simply denies human nature, not that it has ever stopped them before. They can reduce income inequality, though. All they have to do is adopt the policies that are working so well in Venezuela. Otherwise they will simply continue on with their traditional vote buying operation,the time tested modus operandi of welfare state politicians.

Something like 72% of FY 2017 federal spending was budgeted for Human Resources, which as a practical matter means Medicare, Medicaid, Social Security, Social Services and other welfare payments. Net interest on the debt is another 7 percentage points. Medicare and Social Security are gargantuan programs that (largely) benefit those over 65 and are funded by the current generation of taxpayers. (The Trust fund is simply an accounting fiction; it has no actual money). Since wealth is highly and positively correlated with age, these programs redistribute money to the relatively well-off (older people) from the relatively less well-off (younger people).

For perspective consider this. In 1980 defense spending accounted for 22.7% of the budget and 4.8% of GDP. Today defense spending has shrunk enough so that it accounts for only 14.7% of the budget and 3.2% of GDP. On the other hand, Human Resource outlays soared from 53% of outlays to 72% today. In 1980 it was 11.2% of GDP; now it is 15.4% of GDP. So over the years, the federal government has essentially become a giant check writing operation, paying the most to the most powerful and politically well-connected people. That is the nature of progressivism.

And then there is the argument about the deficit. When the deficit exploded something like $9.3 trillion over the Obama years, progressives were strangely silent. But the prospect of an extra $1.5 trillion over 10 years provokes hysterical caterwauling, never mind that they want to spend even more on Social Security. All of which suggests that they believe they can tax their way out of the fiscal nightmare that is the welfare state.

In McCulloch vs. Maryland (1819) Daniel Webster argued that “The power to tax is the power to destroy”. Chief Justice John Marshall agreed, saying “That the power to tax involves the power to destroy…[is] not to be denied”.

We are clearly at the point where the tax burden, which is properly measured in terms of outlays and promised future outlays rather than collections, is destructive. The present value of promised future outlays for Social Security, Medicare, Medicaid and debt service is estimated to be between $100 and $200 trillion. This with a GDP of $20 trillion. It is obviously not sustainable, and the only way to get it under control is to reform entitlements. Which is what progressives simply refuse to do, preferring instead to yammer on about taxing the rich to squeeze $100 trillion in taxes from a $20 trillion economy. Quite a trick that would be.


Please follow and like us:
This entry was posted in Politics, Public Finance. Bookmark the permalink.