Capital Games Tax

With Prezbama proposing changes that would increase tax burdens on the wealthiest Americans, there’s been a lot of talk lately about elites “going Galt,” an Atlas Shrugged reference. As I’ve said in previous posts, I found a lot of value in Atlas Shrugged, but this idea — that the wealthy should go on strike in real life to protest tax increases — is fucking preposterous, and I’ll tell you why.

To kick this off, here’s a chart of the top income tax rate from 1920 to today, from John Cole:

As you can see, for all of the cries of “socialism” regarding Barack Obama’s tax increases on the wealthy, the top tier earners were being taxed at OVER 50% for at least half of the 20th century, including under Eisenhower, Nixon, and Ford, whereas Obama would be moving the bar from the current 35% to just under 40%.

Now in principle I favor capping any income taxes at <50% max, because I have enough of a conservative temperament to find having half of your earnings taxed highly distasteful. But one thing to keep in mind is that when you’re rich as hell, very little of your money is reported as income anyway, which I imagine is the reason FDR could tax the wealthy at 95% during WWII and get away with it.

So if the income tax changes are pretty minor when put in perspective, what else could the Randian complainers be referring to?  Well, Obama also plans to increase the capital gains tax from 15% to 20%.  I had read that he wanted to raise it to equal the income tax’s 39.5%, but according to this Huffington Post article he’s planning to boost it only to 20% so as not to rattle the markets too much.

Now capital gains tax affects the investor class, and the general counter-argument to raising the rate is that it discourages investment and would thus be anti-stimulus.  In fact the general argument against raising taxes on the rich is that as leaders and investors, they create most of the jobs and work that less wealthy people do, so taxing them more is a disincentive to their productivity and investment and will thus hurt job creation and economic growth all the way down the ladder. The Obama team argues that because the number of investors gaining capital on their investments is shrinking rather than growing right now anyway, the tax rate change won’t have the same sort of noticeable chilling effect that it might during a boom– in fact, as the HuffPo article notes, because capital gains are shrinking, raising the rate is necessary to keep the government from losing tax revenue, so mightaswell raise it enough to raise revenues, right?

Now I’m sure there are other business and corporate tax changes that raise the ire of the business class but I don’t know enough on that subject to say anything intelligent, so instead I’d like to make a logical argument for the justice of progressive taxation, and the idiocy of today’s elites using superficial readings of Atlas Shrugged as a justification for “going Galt,” after the jump.

We can all agree that the tax code would be better if it were simpler.  Adn in the HuffPo article I linked to above, the author points out that to make the capital gains tax equivalent to income taxes would raise the issue of major tax reform, because it effectively eradicates the difference between earned and unearned income.

Now there are all sorts of ideas out there about major tax overhauls– Mike Huckabee promoted a number of crazy proposals in the name of fairness during his presidential run, such as eradicating income taxes in favor of a national sales tax, which is actually quite regressive because you spend a much higher percent of your income on goods if you’re poor than if you’re rich.  There are various Flat Tax proposals out there, which would have one rate for everybody’s income taxes. Obviously the rich would still be paying more in real terms, because they have more, but they would get taxed at the same rate as everybody else, so they wouldn’t feel singled out or something.  Frankly, the rich need to get the fuck over it, because a reasonable degree of progressive taxation makes perfect sense as a condition of the social contract that each citizen enters into with his or her government.

REMEDIAL CIVICS!  As any libertarian would be happy to point out, institutions known as  governments are no different than the mafia in the sense that the fundamental trait that makes a government an authoritative body is that it has the exclusive authority to legal violence in its own territory.  Taxes are thus a shakedown for protection money.  Any institution with enough power or guns can effectively declare itself a government — armed revolutions attempt to do just this by starting with the guns and then using them to grab hold of the instruments of institutional power.  Governments’ ability to abuse their right to use force is restricted by the terms of the social contract (“checks and balances”).  Good governments are like Spiderman, in that they believe “with great power comes great responsibility.”  Bad governments actually do operate just like the mafia (see Russia, various parts of Africa, America under Bush II, the FBI under J. Edgar Hoover, etc).  In a good government, taxes are put to use fulfilling the terms of the social contract, a trade of value for value; in a bad government, citizens pay taxes under duress (to the Sherriff of Nottingham) and the money is generally abused (by Prince John. Yes, Ragnar Danneskjold is a retard).

The basic functions of the U.S. government, as enumerated in the preamble to the U.S. Constitution, are to “provide for the common defence” and “promote the general welfare” so as to “establish Justice” and “secure domestic tranquility.”   And since America is geographically vast and resource-rich, it has been an economic dynamo now for over two centuries, allowing many generations to pursue the American Dream by signing onto this social contract.  Elections, representative government, and the amendment process are all rituals to renew the social contract with each generation and allow for the replacement of bad governors or outdated clauses with what are hopefully better ones, theoretically maintaining the legitimacy of the system this way.

So progressive taxation is entirely fair, because you, as a successful member of the elite, could not have gotten where you are today if it weren’t for the initial conditions of domestic tranquility and general welfare provided by the government, as required of it by the social contract, and a higher tax rate is repayment of the debt you owe the government for subsidizing the start-up costs of your life.  The government is then obligated to use these funds to maintain enough opportunity for the next generation to achieve its potential and likewise succeed through will and merit. In point of fact, progressive taxation is itself a mechanism for preserving liberty and opportunity, because it helps prevent a lopsided accumulation of wealth at the top tier of the population, creating a powerful oligarchy that threatens the legitimacy of representative government. When these vital functions of progressive taxation and legitimate government spending are neglected, we see such negative consequences as, say, the state of the country right now, in 2009.

So to the whiny, entitled elites who are watching their investments disappear and hearing that their taxes will go up and think Ayn Rand provides them a righteous reason to damage the national economy by refusing to produce at capacity when there are millions of unemployed citizens who would jump at the chance to increase their productivity if they could find a job, I say reconsider your premises.  Perhaps the current administration, with a major electoral victory renewing the social contract, making left-leaning changes that are very moderate in light of 20th century history, does not represent the “looters and moochers” of Atlas Shrugged, but is actually a legitimate trader of value for value, demanding that YOU stop looting and mooching amounts of wealth that were actually far in excess of your productivity, so that the government can better fulfill its side of the bargain enumerated in the social contract.

In general, I would hope that anybody reading Atlas Shrugged would be wise enough to recognize that the book may have some value philosophically but is too simplistic and incomplete a rendering of the world-at-large to be anything but childish when applied to politics.

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