Yesterday was the anniversary of the start of a very bad thing.
The income tax.
Our creed is: Taxation is theft and income tax is the worst of all taxes.
So we read the following with sad sympathy.
It is from a column at Townhall by Daniel J. Mitchell of the Cato Institute:
On October 3, 1913, one of America’s worst Presidents, Woodrow Wilson, signed into law the Revenue Act of 1913, which imposed the income tax. …
The top tax rate was only 7 percent, the tax form was only 2 pages, and the entire tax code was only 400 pages. And a big chunk of the revenue actually was used to lower the tax burden on international trade …
But just as tiny acorns become large oak trees, small taxes become big taxes and simple tax codes become complex monstrosities. And that’s exactly what happened in the United States.
We now have a top tax rate of 39.6 percent, and it’s actually much higher than that when you include the impact of other taxes, as well as the pervasive double taxation of saving and investment. And the relatively simply tax law of 1913 has metastasized into 74,000 pages of Byzantine complexity.
Not to mention that the tax code has become one of the main sources of political corruption in Washington, impoverishing us while enriching the politicians, lobbyists, bureaucrats, and interest groups. Or the oppressive and dishonest IRS.
However, even though I take second place to nobody in my disdain for the income tax, the worst thing about that law is not the tax rates, the double taxation, or the complexity. The worst thing is that the income tax enabled the modern welfare state.
Yes, yes. We heartily agree. Income tax allows redistribution – the robbing of Peter by government to hand out his money to Paul.
The income tax launched socialism on the Western world. A terrible and ultimately fatal disease of the body politic.
Before the income tax, politicians had no way to finance big government. Their only significant pre-1913 sources of revenue were tariffs and excise taxes …
Once the income tax was adopted, though, it became a lot easier to finance subsidies, handouts, and redistribution. … As the decades have passed, the Leviathan state in Washington has grown. And in the absence of genuine entitlement reform, it’s just a matter of time before the United States morphs into a bankrupt European-style welfare state.
And as government becomes bigger and bigger, diverting more and more resources from the productive sector of the economy, we can expect more stagnation and misery.
That’s why October 3 is an awful day in American history.
This is the way the welfare state ends – with whimpers and whistles and bangs.
Interestingly, RT – delivering the message that “Socialism is unaffordable” – is a Russian English-language news channel.
Obama says there should be a limit to how much money anyone should make. He and the “progressive” majority in Congress are trying, step by step, to turn America into a European-style socialist state. Only the state, they believe, can be extravagant, taking money from people who’ve earned it and will earn it in the future, and using it to extend and tighten the power of government. Austerity must be imposed on the people. Let them eat less, feel colder, do without cars. Let them have only the medical treatment and the education government will allow them to have. Limit the amount of wealth any individual may acquire. Profit is a dirty word. Tax, tax, and tax again.
It is a recipe for disaster.
Europe is experiencing the disaster. It is seeing its socialist dream go up in flames on the streets of Athens.
What cannot work, won’t work. Socialism, like all Ponzi schemes, can seem to be working for a time, but must fail. In a favorite word of the Left (applying it where the Left would not) Socialism is “unsustainable”.
Capitalism is sustainable. Capitalism is beautiful. A cornucopia. “The incredible bread machine”. It’s what Adam Smith called “the natural order of liberty”. It could also be called “the system of mutual benefit”.
You want the means to keep yourself alive? Provide something – goods, labor, services, ideas – that others want to buy. You want to live comfortably? Provide more of it. You want to live luxuriously? Provide it better than anyone else does. Both a seller and a buyer you will be. A buyer wants the thing he buys more than he wants the money he pays for it, just as the seller wants the money more than the thing he is parting with.
How can you know what others want? Put what you have to offer on the market and see if it sells. The right price for it is the best price you can get. The free market signals what traders need to know. As the great free-market economists, most notably von Mises, Hayek, and Milton Friedman have explained over and over again, government interference with price controls, minimum wages, rationing, compulsory purchase, bailouts, distort the signals and harm the economy.
Whether idealists and moralists like it or not, human nature is selfish. It has to be. If we were not selfish we would not eat when we’re hungry, warm ourselves when we’re cold, acquire what we need, protect ourselves from enemies. Without selfishness, the human race would not have survived. (It is not only or purely selfish. Individuals can and do choose to act unselfishly too – once they have seen to the needs of their survival.)
The Marxist idea of “from each according to his ability and to each according to his need” ignores human nature. Any attempt by government to put the formula into effect by creating the welfare – or “entitlement“ – state invariably handicaps, suppresses, and impoverishes the nation.
Capitalism is the reverse of that idea. It is a system that encourages each to contribute according to his self-determined need, to be rewarded according to how ably he does it. From each according to his need and to each according to his ability would be a fair description of how the natural order of liberty works.
To satisfy bare need is a poor political aim. It reflects a pinched, narrow, joyless, life-quelling mentality. “O, reason not the need!” King Lear pleads, “our basest beggars are in the poorest thing superfluous.” Generally speaking, in practice, the only way to be sure of having enough of anything is to have too much of it. Profit is a very good thing. It is only when people have extra money and extra time that they can invent new things. And those who produce things that improve the lives of multitudes, things that millions of people want to own and use, are doing far more for the general good than the most generous philanthropist could ever possibly do. Bill Gates with his Microsoft (though he seems not to realize it but to hold some silly lefty views) has actually done more for mankind than all the charities that have ever existed put together.
That is why it’s reasonable to propose that there is no sin of greed. There is a sin of envy. Envy is the raw material of socialist idealism. But wealth, Mr Obama, is not a problem. Poverty is a problem. And your socialist policies will cause it on a massive scale. Let us be free to work for our own maximum profit. Let us have abundance. Let us have feasts, fatness, generosity, might, novelty, and splendor.
Jillian Becker May 11, 2010
Most west European governments have known for the last thirty years at least that it is impossible to maintain the welfare state. None has had the courage to start dismantling it. No matter what party was in power, whether outrightly socialist or nominally conservative, each successive government tried only to postpone the day of reckoning.
It seems that day has now arrived.
Vasko Kohlmayer writes at Front Page about the eurozone’s ‘skyrocketing debt’ and its likely consequences:
The European Monetary Union lays down strict regulations … The so-called Stability and Growth Pact requires each country’s to hold down its annual budget deficit below 3 percent of gross domestic product (GDP). The Pact also stipulates that any member’s public debt is not to exceed 60 percent of GDP.
This year only one eurozone country is expected to have a budget deficit that falls within the three percent limit. The rest will go over, most by a large margin. Germany, which was the country that lobbied most rigorously for the strict fiscal requirements, was among the first to break them. Greece is currently the leading offender with a deficit that equals 12.7 percent of its GDP. But the figures are generally abysmal throughout the monetary union. Ireland’s deficit, for example, is 11.5 percent, Spain’s 11.4 percent, Portugal’s 9.3 percent.
As far as public debt is concerned the average European ratio is 88% of GDP, nearly 50 percent above the “allowable” limit. The worst offender is Italy whose public debt stands at an astounding 127 percent GDP. Greece’s debt is 113 percent, Belgium’s 105 percent, Germany’s nearly 80 percent. High as these figures are, the reality is probably worse as EU countries routinely use an assortment of accounting tricks to understate their deficits and obligations.
It is becoming increasingly obvious that if the euro is to continue as a viable currency, eurozone states must take decisive measures bring their finances under control. This, however, appears to be a nearly impossible task. Greece shows us why. Shortly after the government announced a package of budget cuts and tax increases the country’s civil servants took part in a nation-wide strike. Plans are afoot for another one next month. At the same time, Greece’s umbrella private sector union is planning an extensive walk-out for the last week of February. The Associated Press observed that the Greek government “may find that unions and voters push back against cutbacks that will take years to show results. With a potential public backlash, their chance to win approval for such measures remains unclear.”
Memories are still fresh of the protests that took place early last year. Angry at cuts in their subsidies, Greek farmers blocked major roads and paralyzed the country. Parts of the nation were thrown into chaos as lines of vehicles stretched for 12 miles or more. Unable to restore order, the prime minister was forced to beg the farmers to remove the roadblocks. “There is an urgent need to free up the roads. A whole society cannot be held hostage,” he pleaded.
This time around far more substantial steps must be taken in order to put Greece’s fiscal house in order. This is certainly not going to sit well with the Greek public and there is fear that things could deteriorate in dramatic fashion. …
The Eurozone … faces a seemingly unsolvable conundrum. Even though it is steeped deeply in debt, almost every serious effort to curtail spending meets with popular rage. The problem is that they cannot have it both ways. It is impossible to have a large welfare state and a sound fiscal house at the same time. It is either one or the other.
Until recently the euro was considered a possible alternative to the dollar as the world’s reserve currency. It was thought that the Monetary Union’s strict guidelines would safeguard its debasement. But it turns out that the Union’s respect for its founding documents is only paper deep. It is now becoming apparent that the disregard will have dire consequences. It may even bring about the break up of the eurozone and the demise of what once seemed like a solid currency.
Given that the United States is taking the same path of unrestrained spending, we would do well to take heed and learn from Europe’s painful lessons.
*NOTE: The eurozone is not the same as the European Union (EU). The European Union has twenty seven members as of this year. The eurozone is made up of those countries within the European Union that use the euro as their sole currency. The eurozone currently has sixteen member states.
The crisis may cause the break-up of the eurozone. Undesirable as this may be for economic reasons, one highly desirable political consequence could be the end of the welfare state as such, with the proof of its unsustainability so incontrovertible that no one – not even Barack Obama – would attempt to resurrect it.
The welfare state pays people not to work, not to produce, not to innovate, not to marry, not to have children – or if they do, not to take care of them themselves.
It may be that the peoples of Europe are dwindling away (which they are) because they have no incentive to beget children and strive to raise them. Or to put it another way, they may be dying out because they have nothing to go on living for.
An editorial in the Wall Street Journal titled The Welfare State and Military Power shows why redistributive domestic policy necessarily leads to the decline of power. In other words, socialism weakens the nation. And that is what Obama and the Democrats want to do. As we have reiterated (see below, The two-horse rider and Obama’s grandiose equivocation), it is a choice between liberty and power (and, we should add, prosperity) on the one side, or collectivism and decline (and impoverishment) on the other.
Has the moment of decision come and gone with the election of Obama? Has America already freely chosen to be unfree?
Or is it coming now with the push to nationalize health care, put the economy under government control, and begin the disarmament of America?
If now, which way will America choose to go?
Here’s an extract from the WSJ article:
Welfare spending [in Europe] has crowded out defense spending. The political imperative of health care and pensions always trumps defense spending, save perhaps in a hot war. Europe may never again be able to muster public support for a defense buildup of the kind the U.S. undertook to end the Cold War in the 1980s, or even the smaller surge after 9/11.
The tragic irony of this year is that Democrats are rushing the U.S. down this same primrose entitlement path. With ObamaCare certain to eat up several more percentage points of GDP as it inevitably expands, we will take a giant step toward European social priorities.
For many Democrats, this is precisely the goal. Many Europeans, such as those at the Financial Times, will also welcome America’s relative decline. But we doubt the American people fully understand what such a gilded entitlement cage means for our national vitality, or for our ability to defend U.S. interests at home and abroad. …
President Obama’s domestic agenda may well mean that his successors lack the option to deploy 100,000 troops to Afghanistan, or to some other future trouble spot. This is the way superpowers lose their superiority.
As a Democratic administration and Congress threaten to turn America into a welfare state on the disastrous European model, this interview from Front Page Magazine is worth noting.
Jamie Glazov interviews Martin Durkin.
Durkin: To most people, I imagine, welfare seems an obviously good thing. But in fact the corrosive and iniquitous side of welfare has been evident for many decades. It’s only now that people are poking their heads out of the trench and daring to say so. You can see the devastating effects of welfare in Britain, for example, in the exponential rise in single motherhood. The figures are astonishing. In the 1950s almost all children in Britain were brought up by their natural parents. Today, only around half the children in Britain are brought up by their natural parents. Half!
FP: Why has that happened?
Durkin: To see why that happened, let me paint you a picture. In the 1950s, the typical working man and his wife In Britain lived in an income-tax free existence. They kept every penny they earned. For an unmarried teenager, there was no council flat (the ‘projects’ I think you call them), no rent rebate, no rate rebate, no housing benefit or anything else. The burden of looking after her and the child fell on her family, friends or charity. Parents who discovered their daughters were pregnant were understandably furious – because they had to pick up the tab. That’s why Dad stomped round to the family of the boy responsible, to call him to account. They boy’s family understood the full economic implications of making babies and came down on him like a ton of bricks. From the real economic relationships there arose a real moral code – the value and the cost of things were clear. The growth of welfare benefits has been huge since that time. And within that system a pregnant girl gets special treatment (top of the state housing list etc). The fear has gone. The old idea, “Don’t, for heaven’s sake, get pregnant. It would be a disaster” has gone. For many girls, getting pregnant is a ticket to get out of the parental home. This has been the subject of detailed studies. A ten percent increase in benefits, one of them finds, tends to increase the prevalence of single mothers by 17 percent.
FP: How has the Left played a role in this development?
Durkin: This whole trend in social policy was fuelled by the anti-family views of the left. The family was bourgeois. Divorce was even celebrated (at least among the serious Left and among tougher feminists). I suppose they thought they were doing young girls a favor. If they did, they were fatted-headed idiots. The effect is disastrous for all those involved. The levels of depression, violence and criminality among lone parents (and their wayward children and transient partners) is heartbreaking. As one commentator puts it, “The evidence that lone parents – and indeed those who cohabit – are very more likely to be victims of violence is worldwide, consistent and overwhelming.” In Britain single parents are about 20 times more likely to suffer domestic violence. A child of a single parent is 15 times more likely to be abused than a child brought up by two natural parents. A child brought up by their natural mother and a cohabite (non natural father) is at even greater risk – 19 times more likely to suffer violence and 74 times more likely to be killed. It’s awful. To catalogue in detail the full devastating effects of welfare – also for example the crippling effects on men who are out of work – would take ages.
FP: Ok, but tell us some more negative effects.
Durkin: Overall, I think in general the bigger evil effects of welfare have been enormously underestimated, even by commentators who regard themselves as more pro-capitalist in their sympathies. Welfare is the basic cause of the deleterious cultural changes we have witnessed in the West over the past 60 years. The Welfare State, pioneered in Britain of course, has corrupted this country to its core. It has transformed the country caricatured by Noel Coward and others – essentially pretty decent, self-reliant, and plucky – into a country which is thuggish, selfish, mindless, dispirited and lost. Gone is the British stiff upper lip. Modern Britons are moaning, self-pitying inadequates. The welfare state has bred a generation of obnoxious, drug-addled criminals and ne’er-do-wells. It has also, incidentally, burdened what was once the world’s biggest, most dynamic economy with the dead weight of an obstructive and vastly expensive state machine. I’m sorry to sound cross about this, but I don’t think people fully realise what’s happened. Britain has, I think, the highest crime rate of any industrialised country in the world. It is twice as high as the US. The violent crime rate is higher in London than New York. Britain has the highest rate of drug abuse, the highest teenage pregnancy rate and the highest rate of sexually transmitted disease in the modern industrial world. What the hell happened?
FP: So what the hell happened?
Durkin: The logic is inescapable. Each slice of do-gooder social policy has had its own tragic, unintended effects. The weight and quality of evidence leaves no room for doubt. The Welfare State has been an unremitting disaster, beyond any hope of reform. It is not that the welfare state isn’t functioning properly, it is that the welfare state is in essence degrading. In the US, I think much the same can be said of the effects of welfare on the black community. How did we get from the nobility of Martin Luther King, to the sordid, gun-toting, rantings of the gangster rappers? Does the Left imagine that this represents liberation? Larry Elder and others have no doubt what’s to blame. The story goes back to Lyndon Johnson’s War on Poverty, which had people going door to door, encouraging people to get on welfare. Now, I understand, nearly 70 percent of today’s black children are born out of wedlock. It can be demonstrated beyond any shadow of a doubt that the modern ‘cultural trends’ which we lament have an economic cause, and are a direct result of state intervention. The Left do not see economic necessity as a proper reflection of actual human relationships, but some capitalist carbuncle. It’s clear now that in removing economic necessity from people’s lives (which is what welfare does), we risk sinking into barbarism.