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Justice, Fairness, and Taxation, Part 1

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By on Featured, The Economy

Very few people actually argue that there should be no tax to support the functions of government. Distributists accept that government has a proper role in society and needs to exist for the fulfillment of that role. The functions of government have a cost which must be covered, therefore, we must address the question of how a government covers its costs. One option would be for it to engage in commerce to raise its money. The obvious problem with this is that, as the maker of laws which regulate commerce, the government would have a clear conflict of interest if it competed in an activity it also regulated. That only leaves voluntary contributions and taxes. I believe voluntary contributions would only work if we lived in a world without sin, which leaves us with taxation. Taxation takes many forms. There can be taxes on imports, exports, income, inheritance, property, sales, wealth, land and just about anything else, and these can be applied in numerous ways (as the complexity of tax laws prove). The level and method of taxation is directly related to society’s views on the proper role and function of government.

One element of Keynesian economics depends on the continued existence of a very wealthy class who can be taxed in order to redistribute wealth to the poorer classes and thereby stabilize the economy. Because of its acceptance of monopoly, Capitalism is inherently unstable. In order to keep costs down and increase profits for the monopolists, wages are kept as low as will be tolerated. This results in the accumulation of large amounts of wealth among the few monopolists who manage to claw their way to the top. However, because wage earners are also the bulk of consumers who must buy the products, low wages keep them from making purchases and thereby contributing to the profits. Keynes recognized this and proposed that government should redistribute wealth from the rich back to low wage earners through taxation. This would provide the low wage earners with the money necessary to engage in commerce and keep the “economic engine” of Capitalism running.

Many who profess adherence to Capitalism consider this wealth redistribution to be socialist because some who promote redistribution seem to want to use it as a path to Socialism. However, the Keynes method of wealth redistribution was not developed as a transition to Socialism; it was developed as a means to maintain Capitalism. Conservatives and libertarians accuse liberals who promote wealth redistribution of being socialists. While a few may actually be socialists, these liberals are simply advocating a different school of Capitalism – a school which the classic distributists published in 1936 must come into existence in order for Capitalism to survive. This was the same year that Keynes published The General Theory of Employment, Interest and Money. The conflict between these two schools has manifested in the division between the leadership of the Republican Party for the last two decades and the populist Buchanan Republicans, TEA Party activists and Libertarians.  This is why, even though the current and last administrations come from different sides of the aisle of political partisanship, the bail-outs of both gave money to the banks and corporations and not to the struggling small businesses, poor or middle class. The economic divide between conservatives and liberals is not that of Capitalism versus Socialism; it is the division of two schools of capitalists who are arguing over how much wealth the government should redistribute. The rich must continue to exist in order for the Keynesian system to work. The big corporations are “too big to fail” while small businesses and the common citizens are too small to matter (except during election season). This is important to understand. In our current system, a key function of government is to maintain the wealthy class while simultaneously redistributing its wealth back to the poorer classes in order to keep the economy going. This is accomplished by taxing the income of the rich for redistribution.

In the next part, I will discuss how Distributism is different from the Keynesian theory.

 

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  • SayWhat

    There is a major flaw (deadly, actually), in your argument.

    “Because of its acceptance of monopoly, Capitalism is inherently unstable. In order to keep costs down and increase profits for the monopolists, wages are kept as low as will be tolerated. This results in the accumulation of large amounts of wealth among the few monopolists who manage to claw their way to the top. ”

    Acceptance of monopoly? Where? How? When? I’d love to find a monopoly in capitalism!

    But that’s not even the deadliest flaw. Re-read your sentence:

    “….the few monopolists who manage to claw their way to the top.”

    Ummmm, how is it that a monopoly has to claw its way to the top? Wouldn’t that imply hundreds, perhaps thousands of competitors that fought deeply on service, price — in other words SERVING customers better than competitors — to gain a preferred position?

    Once you strip this concept out of your idea — the entirety of your argument fails.

    Sorry — but it does.

  • A monopoly is any single business entity with the power to dominate its market. A perfect example of a monopoly in capitalism is Microsoft. I know that there are a lot of people who mistakenly believe that a monopoly means that all competition has been eliminated, but that is simply not the case.

    Microsoft is also an example of a monopolist that clawed its way to the top. It did not get there by providing the best products or services. It did not get there by being the most innovative. It did not get there through honest competition. As evidence in anti-trust cases all over the world has demonstrated, Microsoft ruthlessly and deliberately stifled innovation, hindered their competitors, and even deceived their customers in order to make more money.

    Therefore, the entirety of my argument stands and your objection fails, and fails miserably.

    • I would also add that, when I speak of monopolies, I am also including cartels, where a group of large businesses continue to compete against each other in the market, but cooperatively use their economic power to manipulate the powers of government to protect their positions in the market against other competitors, and also use their economic power to either eliminate or absorb competitors. Examples of this are the banks and the auto industry in the US.

  • Mary Kochan

    I’m not a specialist in economics, merely your average fairly well-read lay person. It seems to me that the idea above expressed by SayWhat, that business competition in the free market capitalist system will always (or at least, generally) allow for the best innovators and those offering the best service to rise to the top is a kind of idealism. In its own way it is the flip side of the communist idealism of from each according to his gifts and to each according to his needs. Tried repeatedly by groups as diverse as the Pilgrims and The Farm, it, like the free market ideal, always crashes into the reality of human sin and selfishness. Business enterprises DO sometimes exploit people — both workers and consumers. They DO use money to influence government policies that favor them over upstart competitors. They DO run afoul of moral hazards where they do not have to bear the consequences, e.g. pollution.

    It is very hard to think through this stuff. I feel like we have a bell the cat problem. WHO can we trust with control in either direction?

  • Meli1234

    I am interested to read about distributism, but I have to wonder if your understanding of it will be as flawed as your understanding of the market. I encourage you to read up on the history of monopoly. When you do, you will discover that from the very beginning, governments took action against large business interests, NOT because they were bad for consumers, but because their business competitors did not want to have to compete and instead lobbied for government action to stifle thei competition.

    Microsoft gained the market share that it did because it offered a product that people wanted at a price that was most favorable to consumers. They did not do this by keeping wages artificially low. The people who worked for Microsoft were not slaves. Wages are like any other price. There is competition for wages. Workers go to the employers who offers the best terms.

    The benefits that Microsoft has provided to us are basically incalculable. They drove the cost of personal computing down to near zero. They were punished by the government basically for giving their product away. Tell me, how is giving something away a bad thing. Twenty five years ago, personal computers were expensive. Now, you can get a computer for near nothing. (My smart phone is a computer that I paid $100.00 for.)

    You should always think twice, no three or four times, when you hear about someone being accused of monopoly “tactics”. That phrase should raise a red flag for you because it is nearly always invoked by a competing concern who hasn’t figured out how to compete and is looking for the government to punish the “monopoly” for its success.

    Also, there has never in the history of business been a successful sustained cartel. In the end, each one of those concerns wants more business than its competitors, so it breaks the terms settled upon.

    Capitalism is merely the term used for what people do naturally when left free to do what they wish in the market. They take their capital, invest it in goods, services, labor, etc., and seek to make a profit. You are a capitalist whether you do it with a hundred dollars or with a billion dollars.

  • Meli,

    As a computer professional for over 25 years, I can assure you that your evaluation of Microsoft’s benefits are greatly overrated. Microsoft was innovative in the beginning, but very quickly became a copier of others. In addition, they frequently engaged in predatory and other anti-competitive behaviors. This is how they grew to become the monolith they are today – and it has been proven in anti-trust cases all around the world. Giving their product away is one of those behaviors. By deliberately losing money in one product line, they drive out their competition. By they way, once the competition is gone, the prices go up again.

    As far as the government “punishing” them for their success goes, you’ve got to be kidding me. That was an absurd joke. After being found guilty on five counts of anti-trust violations, they were allowed to negotiate their own penalty. Tell me, what other criminal gets to do that after the conviction? We’re not talking about a plea bargain here – that happens before the verdict. And exactly what was their punishment? They had to give their software away to a market in which they consistently failed on their own – education. That’s right, their punishment was to do something which, if they had done it on their own, would have landed them in court for anti-trust violations.

    Microsoft gained market shares by engaging in these behaviors going all the way back to the DOS days when their products would warn customers of “potential problems” if the customer was not running Microsoft’s version of DOS. It was proven in court from Microsoft’s own internal documents that they knew very well that no such potential problems existed.

    When releasing Windows 95, they encouraged their competitors to use certain API’s – they advertised them to their customers and said told them that these APIs were how they needed to interface with the new version of Windows. Then, just months before the release, they abandoned those API’s and Novell’s current case has shown clearly – again from Microsoft’s own internal documents – that the reason they did so was to increase the market share of their own products. Your accusation of those other companies not being able to compete is quite fanciful in light of the actual evidence frequently brought up in anti-trust cases.

    You are correct that no cartel sustains its agreement longer. It is also true that no monopoly or large corporation continues to succeed unless it engages in anti-competitive behavior. That is true whether it is direct illegal behavior or using its economic influence to get government to impose taxes and regulations in its favor.

    When people are left free to do whatever they wish in the market, those who are willing to do underhanded things to enrich themselves at the expense – and even destruction – of others are the ones who almost invariably end up on top. The only things that stops them is that, in their greed, the frequently become so stupid that they take themselves out along with everyone else. The 2008 financial crisis is a perfect example. The failure of 8% of mortgages in the U.S. need not have triggered a world-wide financial crisis. It was only because of the way the sub-prime mortgages were allowed to be packaged into mortgage backed securities with credit default swaps as “protection” (a practice that was completely unregulated, by the way) that caused that to happen.

    I hope that, before you continue to support capitalism, you really take a look at ALL of the practices and positions that are regularly employed in its name in the real world. There are many practices in capitalism that are essentially the same as distributism. It is where we differ though, that counts.

    http://distributistreview.com/mag/2010/10/whats-wrong-with-free-trade-and-outsourcing/

    http://distributistreview.com/mag/2010/08/a-problem-with-over-centralizing-production/

    http://distributistreview.com/mag/2011/01/will-the-real-capitalism-please-stand-up/

    http://distributistreview.com/mag/2012/01/is-distributism-a-form-of-capitalism/