Thursday, March 3, 2011

What is income tax for? (Part 6)

Money flowing up

From all the rhetoric surrounding the income tax, it's pretty clear there's a lot of confusion over what its purpose is.

Karl Marx wrote The Communist Manifesto for two reasons. The first half of the book talks about what happens when societies get financially polarized. Marx points out that when the wealthy become super wealthy in relation to everyone else, society gets unstable (e.g. the French Revolution). The working class, upset that they're doing all the backbreaking work and seeing none of the reward, rise up and kill the wealthy, which starts the process over again.

Marx offered a solution in the second half of his book: communism. Instead of having a financially stratified society, he argued we ought to have an equal one. When the book was published, the wealthy quickly recognized the truth of the first half and were subsequently frightened by Marx's solution. After all, the rich weren't any more eager to voluntarily give up their wealth than they are now.

So instead of an equal society, the rich decided they would institute a "progressive" society that took a little bit of wealth from the rich (in the form of various kinds of taxes) and used it to appease the working class with "social programs." Our income tax is the modern iteration of this approach.

There are two statements that I want to briefly deal with. 1) "Half of our population doesn't even pay taxes" and 2) "If we keep taxing the rich so much, pretty soon there won't be any rich people left."

1) First of all, it's true that something like half our population doesn't pay income taxes. Everyone pays payroll taxes (Social Security, Medicaid, Medicare), which actually make up about as much of our tax revenue as income taxes (further, the working class pays far more payroll taxes as a percentage of their income than the wealthy do).

But there's another point here. The wealthy pay most of the income tax... and that's the point of income tax. It's designed to be money coming from the rich that goes to paying for social programs. The fact is that historically, social programs weren't really meant to help the working class, they were meant to
protect the wealthy from the working class. Social programs prevent revolution (lest you think I'm opposed to social programs for this reason... I'm not). 

2) The figure at the beginning of this post should answer this point, but I'll take a moment to verbalize it. The rich are getting richer. Not the opposite. Money is being transferred
to the wealthy, not from them. Essentially, our government takes a few thousand dollars from them, while our economic system funnels hundreds of thousands to them. We do this by design.

It's time for voters to stop listening to the wealthy and the politicians hired to defend their interests. The working class deserves a share of our national wealth. Next time someone tells you the rich are barely making ends meet, just laugh.


  1. Social programs prevent revolution
    that is the biggest point here...thanks for mentioning it. (/me learned something)

  2. It is a significant point, but I'd say Marx was trying to prevent revolutions too. He just wanted to do it differently. Thomas Jefferson may have liked the idea of frequent revolutions, but they can be messy. I think we can get complacent in a stable society, but stability is still desirable.