Don’t the Rich Deserve to Keep Their Money?

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Wealth is socially created — redistribution just allows more people to enjoy the fruits of their labor.

by Michael A. McCarthy

 

Tech tycoons, beloved entertainers, and dazzling athletes nearly always come up in heated debates over taxes. Don’t you like your iPod? What about Harry Potter? Neoliberal economists argue that figures like Steve Jobs, J. K. Rowling, and LeBron James should make more money than the rest of us.

After all, we — the consumers — are the ones buying their products. Their higher pay creates the incentive necessary for the hard work and innovation that even the lazy among us benefit from.

Intuitive as it may seem, this view doesn’t hold up. Advocates for low taxes on the wealthy deliberately choose examples from tech and entertainment, suggesting that the elite are great innovators truly cut from a different cloth.

But a glance at the list of the top-paid CEOs in the United States tells us otherwise. The highest-paid executive is Discovery Communications’ David Zaslav, who made over $150 million in 2014. His great contribution to the human endeavor? Helping to air Here Comes Honey Boo Boo.

Most people understand this and believe the rich should pay more in taxes. According to a 2015 Gallup poll, 62 percent believe that upper-income earners are taxed “too little,” while just 25 percent think they pay their “fair share.” 69 percent believe corporations aren’t taxed enough, while only 16 percent were content with current rates.

But the socialist justification for taxes is grounded in a view — not often captured in opinion polls — about how capitalist wealth is actually created. To explore it, we first need to understand what taxes are and what non-socialists think about them.

Tax policy does two things in capitalist society. First, it determines what share of the total economic pie will be managed by the public, in the form of government revenue, and how much will be left to the use of private actors like individuals and corporations.

Second, it stipulates how that public share is divvied up between the competing needs and wants of individuals, organizations, and corporations. The first is about resource control while the second is a matter of allocation.

Even when a government takes in high tax revenue, it does not necessarily put it to progressive ends. Just consider the huge benefits that flow to corporations through subsidies or state-supported research and development, and it’s easy to see how governments can redistribute up, down, or horizontally.

In a capitalist economy, where productive resources remain privately owned, socialists call for a significant portion of the social product to be controlled publicly and democratically redistributed downward.

However, in the United States today, the libertarian view that “taxation is theft” has seeped so deeply into everyday conceptions of property that even those who support progressive taxation often accept the premise that there is a pre-tax income that people earn and should own outright.

Even the liberal credo that everyone needs to “do their fair share” is based on the implicit idea that workers and capital alike pay taxes out of a civic obligation to give up part of what is theirs for the betterment of society.

On the same grounds, libertarians argue that if pre-tax income is the direct product of a person or corporation’s own effort, it should be theirs to use as they see fit. In this view, even if the government has decided democratically to tax the rich at a higher rate, taxation remains fundamentally unjust. In the extreme formulation of libertarian political philosopher Robert Nozick, “taxation of earnings from labor is on par with forced labor.”

That viewpoint has been rightly criticized by progressives. But socialists should not fall back on the common liberal criterion for taxation: that a person or corporation’s ability to pay should determine the amount they pay. The familiar justification circulates even among leftists, who hear within it an echo of the dictum “from each according to his abilities, to each according to his needs.”

This perspective suggests one of two things, both of which are inaccurate.

First, that taxes are a kind of necessary evil for those that are being taxed. Even though a person or corporation’s pre-tax income is the result of their own labor, it’s more practical for society to tax some of that income for public purposes than to leave it under private control. Or, alternatively, that taxing the rich more is just being fair.

Both of these views get us tangled back in the libertarian thicket — doesn’t such a tax policy still encroach on the rights of the individual? Should fairness then trump individual rights? And doesn’t the socialist argument for heavy progressive taxation ultimately also violate the rights of the individual as well? Why do socialists hate freedom so much?

The socialist view of redistribution within a capitalist society must reject an important premise at play in nearly all tax policy debates: that pre-tax income is something earned solely by individual effort and possessed privately before the state intervenes to take a part of it. Once we break from this libertarian fantasy, it’s easy to see that individual and corporate income is made possible only through tax-financed state action.

The capitalist economy is not self-regulating. The first precondition for firms to earn profits is state-enforced property rights, which give some people ownership and control over productive resources while excluding others.

Second, governments have to manage labor markets to help ensure that the skill needs of firms are met. States do this through setting immigration and education policies. All capitalist states also try to mitigate labor market risks, whether it be the risk of labor scarcity for firms or unemployment for workers.

Third, most capitalists want states to enforce anti-trust, contract, criminal, property, and tort laws, as it makes market interactions more predictable and reliable. And finally, the capitalist economy needs a working infrastructure. Even most libertarians argue that state control over the money supply and interest rates is necessary to spur or slow growth when the economy needs it.

All of this is done with taxes. In short, the very notion of pre-tax income or profits is a bookkeeping trick. A person’s income or a corporation’s profits are in part the result of governments collecting taxes and actively creating the conditions under which they were able to make money in the first place. In this framework, “tax the rich” isn’t merely a cry of spite or a demand for fairness.

The socialist case for taxation and progressive redistribution is built from three basic factors of how capitalism works. First, as just explored, personal incomes and corporate profits are not simply the result of individual work and business competition — instead they are part of a broader social product.

The total income generated in a capitalist society is the result of a collective social effort, made possible by a specific social and legal architecture, and channeled through both publicly funded and privately controlled and financed institutions.

Second, the class inequality that results from making this social product is relational. Capitalists are able to accumulate large stores of wealth only because workers do not. All things being equal, firms can raise their profits in inverse proportion to the labor costs they bear.

The condition for this relationship is, once again, political and maintained through tax revenue. Firms rely on states to enforce property rights and contracts that keep ownership of society’s productive resources — its means of production — in the hands of very few.

As a result, in capitalism, most people work for others; they don’t hire others to work for them. And capitalists employ workers only when they believe that those workers’ efforts are going to make the firm more money than they will take out in wages — doing otherwise would be market suicide.

Of course, hard work, guile, and luck afford some workers the ability to become capitalists. But the basic structure of capitalism, in which a small number own most of the productive assets, guarantees that the vast majority of people will (at best) spend their lives earning wages, but never profits. Taxation provides a partial remedy to that essential, structural inequality of capitalist society.

Third, redistribution through taxation is a means of extending individual freedom — not curtailing it, as libertarians contend. Freedom, according to the liberal theorist Isaiah Berlin, has a dual composition. On one side, there is negative freedom, the absence of coercion or “freedom from” that is the hallmark of most common conceptions of freedom in the United States today.

With respect to coercion, taxes fund a variety of public provisions that offer citizens some measure of freedom from the private tyranny of firms. They form the entire basis of the state apparatus that, in a capitalist system, is the only force whose power exceeds that of the capitalist class as a whole.

Without laws prohibiting slavery, written by legislatures and enforced in courts sustained by the public coffers, people would be compelled by threat of violence or starvation to work for no money at all. Without regulations, like those that demand at least minimal workplace safety or the ones that compel management to engage in collective bargaining, workers would lose what little say they have in how their work is organized.

In the context of tax policy, however, positive freedom matters as well. Positive freedom is the “ability to” — the capacity to do things, and the possibility of selecting goals and making efforts to realize them. Such freedom requires resources.

In capitalist societies with low levels of redistribution, positive freedom is a zero-sum game in which a few enjoy a great deal of such abilities at the expense of many others. Tax policy that divides the social product in such a way that allows some people to live opulent lives while others scrape by cannot be said to promote freedom.

The public education system, for example, which offers citizens the opportunity to develop knowledge and skills in pursuit of both collective and individual ambitions, is a bedrock of positive freedom that can only be sustained through taxation.

In a truly socialist society, the combination of political and economic equality would offer everyone a far greater degree of both negative and positive freedom than they enjoy under capitalism. Until we realize that world, progressive redistribution through taxation is both a means to redress structural inequalities and the primary way we can expand and extend freedom to as many people as possible.

But we are headed down the wrong path. Over the past few decades, financial gains from growing labor productivity have primarily flowed to the top while tax rates on top earners have been drastically lowered and now approach pre-New Deal levels.

Even a modest increase in the total tax burden on the top 1 percent of earners to a 45 percent rate, far lower than its postwar levels, would bring in an additional $275 billion in revenue. That’s far more than just the $47 billion needed to make all public colleges and universities tuition free.

Such increases also go a long way in generating the revenue needed to finance a universal health care system, increase Social Security benefits, and rebuild our crumbling infrastructure.

Most would agree that we all deserve to live in a society where we are given what we deserve, are free, and have the capacity to be creative and reach our potential. As unglamorous as it may seem, redistributive taxation is a step in this direction. The rich didn’t earn their wealth — they’re just holding on to it for us.

The new issue of Jacobin is out this month. Buy a copy, or a special discounted subscription today.

 

https://www.jacobinmag.com/2016/04/tax-the-rich-capitalism-marx-socialism/

>> The capitalist economy is not self-regulating

I've come to appreciate this argument and found this article well written. Much better than the last one you posted from this magazine. The total effective tax rate is relatively flat and a more progressive tax system would only help our consumer driven economy flourish. 

>>   The rich didn’t earn their wealth — they’re just holding on to it for us.

What a horrible, trollish way to end an otherwise reasonable article. 80% of millionaires are first generation millionaires. 62% of billionaries are first generation billionaries. If they didn't inherit their wealth, who are you to say they didn't earn it? I can appreciate that we need a more fair tax on income, but their wealth isn't yours/ours.

 

"Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires." - John Steinbeck

>>>>>> 62% of billionaries are first generation billionaries.

 

How many millions did they start with?

 

>>>>>>80% of millionaires are first generation millionaires.

 

How many hundreds of thousands did they start with?

I don't know. how many?

I don't know either but doesn't it seem like a fair question?

>>>>> I can appreciate that we need a more fair tax on income, but their wealth isn't yours/ours.

 

That's like saying you're worried about the deficit but don't care about the national debt.

Wealth is just the sum of all previous incomes, minus expenses.

If the income has been "correctly" taxed over the years, the wealth has been taxed. If not, then it could/should be.

>> That's like saying you're worried about the deficit but don't care about the national debt.

First of all, comparing people's personal finances to government finances is ridiculous. 

Taxing people's income makes sense because they can plan ahead. However, taxes to wealth would be much more turbulent. Most wealth isn't liquid. If people were forced to pay a portion of their wealth in taxes their would be a great sell off of assets. I'm no economist, but it seems like that would cause significant deflation. Probably destroy the stock market and housing prices too. 

>>>>Probably destroy the stock market and housing prices too. 

Bummer

Only the Clintons deserve to keep all their ill gotten gains.

 

They are special