the rich don’t have enough money

The time has come, think many on the right, for a flat tax. In the United States Steve Forbes, and in Canada, Stockwell Day, have proposed it. We seem no longer to hear of it in the United States since the demise of Steve Forbes’ presidential try several years ago. However, we begin to hear more of it in Canada as Stockwell Day has won the leadership of the Canadian Alliance Party, and will, probably, be a major contender for Prime Minister in the general election expected sometime in the next year.

On the surface, any proposal to give us back more of our own money seems unassailable. Who can argue with what everybody knows is a good thing? Except the ungrateful, the envious, and of course, those liberals.

It is time for a more profound analysis of the flat tax one that goes beyond accepted dogma, and delves into the foundations of an unprecedented attack on the social fabric.

the poor have too much money

The flat tax is poised against a progressive tax, or at least, the remnants of a progressive tax--the idea that those most able to pay more, should; those less able to pay, should pay less. This based upon the idea, now disparaged in many quarters, that the wealthy owe more to society than the poor.

Across North America, the progressivity of the tax system has flattened out in recent years, making it more regressive. Politically, it has given form to the idea that, somehow, the rich don’t have enough money.

The converse idea is that, somehow, the poor have too much money: In the flattening out of the Canadian tax system in recent years, the bottom tax bracket, which was about 13%, was raised to 17% when the upper brackets were lowered to the present rate. Maybe the idea was that the increase in tax on those at the lower end would compensate for the loss of tax revenue from those at the top--morally, if not actually. (Not to mention the loss of tax revenues from the lowering of corporate income taxes. But that is a discussion for another writeup.)

The belief that someone who is making $100,000 only owes society 100 times more than someone making $1,000 is ill-founded.

I will discuss the ill-founding of the flat tax in the areas of:

  • participation in the society
  • obligations to the society
  • contributions to the society
  • fairness
  • effects upon the social fabric

Participation in the Society

In any discussion of the tax structure, there must be an understanding of the participation of the members of the society in that society. It is a fundamental consideration.

Before the industrial revolution, and the contributing agrarian revolution, it was possible for those without money to almost fully participate in society. Of course, what we think of as society did not yet exist. Most people lived in rural areas, their existences tied to the land, to farming, probably subsistence farming; their lives were barter--money was not a factor.

With the enclosure of the commons--that constituted the agrarian revolution--and the movement to large concentratons of people--cities--money becomes the requirement for participation: not only participation, but simple existence.

Even those on the right recognize this in the acceptance of welfare, however meager.

It goes without saying--almost--that those on upper end of the income structure participate most fully in the cultural, recreational, political, civic and of course, economic activities of the society. Those on the lower end do not.

Under the idea of participation, I also include income received by all members of society. This may be considered a novel idea, but less so upon reflection.

Any thorough examination of history will show that individuals, families, and corporations, that have done exceptionally well, have done so by using what the society provides--and where society isn’t favorable, they use their influence to change it.

when society doesn’t go their way, the rich make it go their way

Corruption isn’t new, and isn’t possible without participation in the society. Most often, the changing of society to favour the rich isn’t considered corruption. Such activities are hidden and ignored, or described as something else, and then lauded. Gustavus Myers, in History of the Great American Fortunes (last copyright in 1936), presents the classic discussion of this for the United States. A similar work in Canada, upon the Bronfman family, behind Seagram--and rum-runners to the United States during Prohibition--Ken Thompson of The Globe and Mail, Conrad Black, Bombardier, and others, has yet to be written.

While the, so-called, new economy may change the way money is made, the foundations of all the above fortunes were in the country of their birth, and affected by the laws, and social structures of those countries. And they have changed the laws and social structures of those countries. The Canadian fortunes that have moved into the new economy, were based upon the old, and the fortunes accrued there.

Obligations to Society

It is not fashionable to speak of one’s obligations to society. Rather, as in Margaret Thatcher’s famous dictum, “there is only the family,” society is no longer believed to exist. Or as in the more famous English statement of self-satisfaction I’m alright, Jack!.

The foundation of anyone’s life is one’s health. And the foundation of one’s fortune in the new economy, at least, is education. In Canada, both of these grow from the social investment in medicare, and public education--from primary, through secondary to post-secondary.

The problems in the public health system in Canada have not prevented the healthy growth of at least one generation of industrialists. Nor have any problems in the public education system prevented the accumulation of knowledge and skills by this same generation.

The government of Ralph Klein in Alberta--in which Stockwell Day was a senior minister--may very well be the one that forces American private health care providers upon all of Canada, and the health care so beloved by Americans--of all incomes: Under free trade, all provinces will be required to admit private health care providers, and lower their systems to the American model. As they will be forced to do in the educational system when Mike Harris, in Ontario, admits private universities.

And it will be public money.

It can be argued the problems cited to justify these actions are caused by the cuts in spending required by the tax cuts the rich clamor for. It can also be argued the rich are trying to shirk their obligation for what they have received from society--from Canadian society, at least.

One can extend this argument to the attempt to remove all services from the public sector. Tragedies arise that the rich, particularly the very few that are very rich, will be able to escape. The rest of us will not.

Contributions to Society

It may be argued the rich make many contributions to society.

Their fundamental contribution, it may be argued, is their wealth. Their wealth creates wealth for everyone else. It is the engine that makes the economy go. Their individual energy, intelligence, and risk-taking, makes everything else work.

Kevin Phillips in The Politics of Rich and Poor, points out that during the Ronald Reagan years, the creation of vast wealth for some, created vast misery for many. (See also What's a Million?)

The trend to privatization itself begs the question of the risk-taking, and innovativeness of the private sector; if it was, why were the privatized actiivities in the public sector in the first place? They are good enough for the private sector now that the risk has been taken, why not before?

It can also be argued that much innovation comes not form the private sector, but the public sector. Anti-cancer drugs, like cis-platen (which my mother took during her chemotherapy for lung-cancer), was discovered by the American National Institutes of Health, and turned completely over to the private sector. (In recent months, Bill Clinton has initiated action to require a reasonable royality to be payed to the American government. If a private entity had discovered this drug, and others like it, such payment, probably substantial, would be made, to recoup the initial investment. But how would that profit the private sector?)

the poor spend, the rich save

It is argued above that ending the punishment of progressive taxes would free the rich to spend more, allowing governments to collect more from consumption taxes, like the GST. However, there is serious question how much more the truly wealthy would consume. How much more food? How much many more clothes? How much more transportation?

It can be argued much more of the rich’s money goes into what is not consumed. And what is actually consumed, is presented, by tax lawyers, and accountants, as, capital, investment, or business expenses, as are the costs of these lawyers, and accountants themselves. Anyone who has been close to a business, knows this.

And the rich save more than the poor. Their income is always more than their expenses. If the poor can be told to live within their means, so can the rich. But what good are savings to the immediate needs of society? The poor spend everything they receive immediately. It has been argued that the velocity of the circulation of money in the economy is more important, dollar per dollar, than its amount--particularly when spent on the basic of food, clothes, housing, transportation, not on foreign investments or luxury goods.

where does the money the rich have actually come from?

The poor can never hold on to their money. On one hand, this is criticised as a failure of character--but on the other, isn’t this the ideal of our society? To spend!

The tax-deductible donations of the rich to causes they have major say in determining are tax-deductible are often cited as contributions.

It is even reputable to argue there should be no encouragement for charitable contributions, that the church, or volunteer organizations can do it. Or best of all, that individuals will do this one their own--”a thousand points of lights.”

”a thousand points of light”

So, welfare becomes a cottage-industry for the rich. They will determine who is deserving, and who is undeserving. The very reason reason for the creation of the welfare state in Canada was that this private, and religious relief system didn’t work. Are we condemned to repeat history so some people can buy another sports car, or a vacation home in the Alps?

Even volunteer organizations have been sorely tried by cuts in public spending--they are unable to maintain the infrastructure necessary to channel the impulses of those, not married, or otherwise connected to wealth, and who are unable to make a career of charity work.

Fairness

It’s not fair, declare the wealthy. It is forced redistribution of wealth. They have done it all by themselves. And in a democracy, their contribution should be no more than anyone else.

But I argue the rich have received much more from society than the poor. The very skewing of the entire social fabric towards the rich is proof of my assertion. I argue the apparant collapse of our society around us is the shirking of the responsibility of the rich for the society to which they owe so much. And as they abandon society, it will rot.

Effects on the Social Fabric

society is crumbling around us

We all see this. We must find a cause. We must blame someone--it is no longer fashionable to blame any thing. No longer do we even speak of the obligation of corporations towards the welfare of the society in which they grew and became wealthy and powerful. Some of these very corportions are the entities that report the state of our society to us.

And so, we now argue that society’s rot is caused by character flaws in the undeserving poor, and the solution is to free the ones with money from the rot by giving them more of their own money. O, but we will, as a matter of individual initiative, help those few deserving poor.

In any battle between the wealthy and the poor, the poor will always lose. They always have.

But so will the rest of us!

First it was the suburbs. Then it was the exurbs--those towns and villages outside of the population centers. This creates urban sprawl. Now, there are gated communities.

The homeless are increasing. Many feel they can protect families from this rot. but we exist upon an escalator that is moving down. As public services are cut to fuel more tax cuts, fewer and fewer of us will survive. this is the American model:

We deliberately close and tear down affordable accomodations, and built no more. We harshly police those who are forced to be on the street, and are surprised and angry when they do not react kindly.

It is reputable to argue they are homeless by choice. Or, when pressed, that they are homeless because of some earlier decision--and so further, and further back to. . .somewhere.

the social contract has been abrogated

The social contract binding society together is grounded in empathy: the ability to understand, on a basic level, what, and how others feel towards the fundamental facts of their lives as they live them. The foundation of the Golden Rule, if you will. This has been abrogated.

In Canada, the thread holding the social fabric together has been the idea of universality. The belief all members of society, rich and poor, French and English, native-born, foreign-born--all members of the vertical mosaic--must share equally in the society for it to exist, let alone prosper. We gave concrete expression to this belief in the comprehensiveness of thesocial safety net: medicare, public education unemployment insurance, the entire canopy of the public sector and its services.

This is not just pie in the sky. Few believe intelligence, talent, skill, ability to innovate, etc, are limited to those families with inherited money. Most believe that depriving society of well-educated, healthy persons whose families who are not wealthy, will deprive the society of the gifts those people bring--and that society relies upon to prosper.

the flat tax accelerates the rending of the social fabric

It may be possible to escape the civil unrest that is coming by living in gated communities. It may be possible to contain much of the unrest with the technologies of surveillance that increasingly surround us--ever expanding the surveillance society we already live in. This civil unrest is, and will be, the justification for further curtaillments of our civil rights, and human rights.

But as old and new infectious diseases establish themselves in those denied participation in society, all of us will be at risk. Bacteria know no gates!

We are all part of the weave of the fabric that is society, no matter what our income.

The issue is not how much more can we let the rich take from our society, but how much can we make them give back.

In America, the main argument for a flat tax is that it will vastly simplify the tax code. At last count, there were over 700 IRS forms and over 250 IRS publications attempting to explain them. The American tax code consists of over 7,000,000 words. The code is totally incomprehensible. Even veteran IRS workers don't understand the tax code. Last year, 37% of inquiry calls to the IRS went unanswered, and when the intepreters of the tax code bothered to come up with an answer, they were wrong 47% of the time! Statistics courtesy of the General Accounting Office (GAO).

As a result of this, the tax code is filled with loopholes and legal backdoors. Most Americans will be able to save a few dollars, but the true beneficiaries of the bloated code are the rich people who hire tax lawyers to comb through their finances and claim every exemption possible. Not all rich people do this, just some (yes, another liberal stereotype exposed). They are able to save thousands, sometimes millions of dollars by referring to some arcane passage in the tax code and getting tax exemptions. Liberals applaud the current tax code and want to pile more regulations and forms into it, but the only thing they managed to do is give more loopholes for people to exploit.

The current American tax code is incredibly progressive. Don't let any liberal tell you that it isn't; last year the top 10% paid over 40% of all American taxes, while the bottom 25% did not even contribute 10% of all tax revenues. President Bush's tax cut is also quite progressive, everyone gets a tax cut and the poor regain a far higher percentage of their income than the rich. The problem is that the tax cut will inevitably add even more bloat to the code. Any time you change the tax code, it becomes more complex and hence more vulnerable.

The flat tax will do away with the immense tax code and replace it with a simple, progressive tax. The most common liberal complaint against the flat tax is that it is "regressive". That is a blatant lie. The flat tax allows two adjustable parameters, the personal exemption and the flat tax rate. Each person gets a personal exemption. Subtract the total personal exemptions from the total income and you get the taxable income. The flat tax rate is then applied. In this system, the poor would be totally exempt from taxes! The more you earn, the more you pay. To make the flat tax even more progressive one would simply increase the personal exemption. It is obviously a progressive tax. The main benefit though, is that there is no escaping it. Tax lawyers will have to work in Canada because every American will have to pay their share.

That is why the loudest opponents against a flat tax have been the tax-dodging rich, because they will have to pay more taxes, and the liberals, because they cannot stand to have their tax code dismantled.

So what would happen if the flat tax was implemented in America? The IRS would be cut down to a mere fraction of its former size, saving millions. There will be equal and fair tax justice. And Americans would regain 4.3 million man-hours of productivity. Most propsed flat taxes would collect an equal amount of revenue compared to the old, bloated tax code, so yes, there will still be social security, and public spending, and all the wonderful things that liberals love and cherish.

If you ignore the apocalytic naysayers and their prophecies of social doom for a bit and examine the case for a flat tax you would find that it is indeed progressive, and far superior to the current American tax code.

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