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Friday, October 31, 2008

The S-Word

So the S-word has surfaced in the presidential campaign. One candidate accuses the other candidate of being a socialist because he would raise taxes on the wealthy while cutting taxes for, among others, workers who pay no income taxes. The accused laughs it off, saying next he'll be called a communist for sharing his toys in kindergarten. (Of course, then he was sharing his own toys.) Meanwhile, the first candidate — the one hurling around the socialism charge — says if elected he'll buy up shaky mortgages and send checks to people who pay no income taxes so they can get medical insurance.

I'm beginning to understand how Alice felt.

This is as weighty as political campaigns get in America. Those with an appetite for hearty political debate are suffering the pains of malnutrition, which nothing short of nightly doses of The Daily Show can relieve.

As for the S-word, certain distinctions are worth maintaining. As Ludwig von Mises noted, socialism and interventionism are different beasts. Strictly speaking, a (state) socialist longs for the abolition of the market, free exchange, money, and private ownership of one's labor and the means of production. Central planning of all production would take the market's place. The interventionist merely longs to distribute some of the fruits of the market according to his own high-minded predilections.

Today no one is calling for the nationalization of anything.

Well, except for the banks.

And the insurance companies. But nothing else.

Ok, the auto companies too. But that's it. The rest of the market would remain in operation. I mean it.

Both candidates are on board with this.

That one candidate talks about spreading the wealth and the other protests does not mean they actually differ on this score. When a spokesman for the one who says he doesn't want to spread the wealth was asked if that means his candidate opposes the progressive income tax, the spokesman said in earnest: No, but the other guy wants to make it more progressive.

This is a debate?

So both candidates firmly support spreading of the wealth whether they use those words or not. Both, for example, voted for the $700 billion bailout of Wall Street and approve of the myriad other rescues. Both support relief for people having trouble paying their mortgages. As we've noted, one would let tax cuts expire so tax relief can be granted to a group of people that includes some who pay no income taxes. The other would issue refundable tax credits for medical insurance. In Washington lingo a refundable tax credit means that someone who has a tax liability of zero gets a tax cut anyway. Go figure.

Paying For Tax Cuts?

I'm always amused when candidates talk about paying for tax cuts. The one who wants to let the Bush tax cuts expire says the revenue is needed to cut taxes for the middle class.

Wait a minute. You don't need money to cut taxes; you just stop taking it. Programs, not tax cuts, require money. What candidates who talk like this really mean is that although it's politically expedient to cut taxes for one constituency or another, they have no intention of letting this get in the way of their spending plans. Otherwise, they could cut taxes for everyone.

Politicians sometimes talk about cutting spending in connection with cutting taxes, but you never get the sense their hearts are in it. It's like, Yeah, yeah, we're going to make up for the lost revenue by cutting waste, making programs more efficient, and axing the ones that don't work. Don't hold your breath.

At any rate, the deficit grows. Politicians like to spend more than they could possibly raise in taxes. It's how they win friends and influence people. Borrowing is painless, or appears so. The taxes needed to repay the debt are off in the future, and the inflation needed to monetize the debt can be blamed on price gougers. It's the perfect crime.

Big spenders will look back on these days as golden. Because of the economic turmoil, all caution has been thrown to the wind and everyone is free to propose virtually limitless spending. Next to a $700 billion bailout, a $50 billion plan looks like peanuts.

What's Left?

What's so funny about the socialism charge is that if we were to rid the government of all wealth transfers, there would hardly be anything left. It's what government does. It's built in, and the progressive income tax is not the only culprit. Under a flat tax some people would pay no taxes — there's always a zero bracket, or personal exemption — and those who earn more would pay more dollars than those who earn less. Assuming everyone gets the same government services, we have to conclude that the richer subsidize the poorer. The only way out of this would be a head tax, but that's not going to happen.

Another complication is that those who pay no income taxes do pay Social Security and Medicare (FICA) taxes. But this doesn't get us out of the transfer problem. If those who have their taxes cut are promised the same Social Security and Medicare benefits when they come of age, someone will be subsidizing them. Social Security and Medicare are transfer, that is, welfare, programs.

So where does that leave us? First, the U.S. government today is, and for a long has been, a transfer machine. The parties and candidates may argue about the direction of the transfer (welfarism versus corporatism) but morally that is a secondary matter.

Second, most people accept forced government transfers as normal and proper. It's a little late for one of the political parties that created this situation to begin complaining about it. Those of us who oppose all forced transfers as immoral have a lot of work to do at the most fundamental levels. Little headway will be made in an election season.

Third, to quote Mencken, Every election is a sort of advance auction sale of stolen goods.

I know that remark is quoted often, but I make no apology for it. In my view it can't be quoted often enough.

  • Sheldon Richman is the former editor of The Freeman and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families and thousands of articles.