A Neo-Socialist Look at Taxation

There is an important debate going on about just how progressive a tax system has to be in order to serve progressive political ends. The debate was instigated by Edward Kleinbard, writing in the New York Times. Kleinbard argues that we should avoid steep increases in taxes on the rich in favor of “boosting revenue over all,” on the grounds that the American tax system is already the most progressive in the world, and that in any case we should focus on the progressivity of the entire fiscal system, not just the taxation side of that system. Some of the more interesting critical discussions of Kleinbard have been produced by Mike Konczal, Steve Waldmann and Matt Bruenig.

From my vantage point, building a bit on the neo-socialist approach I sketched in my previous post, tax policy should be informed by ambitious egalitarian goals. Contrary to Kleinbard, I believe we do need to tax the rich much more heavily. But the primary point of these taxes is not to finance the spending side of the nation’s fiscal program. Here are the two key points I think need to be made:

The best reason to tax the very rich heavily is, initially, to make them less rich.

The best subsequent reason to tax riches heavily is to prevent people from becoming very rich again.

The long-term goal of neo-socialist political economy is to build a more equal and a more democratic society, a society in which we have done everything we realistically can to level the vast differences in income, wealth, social status, education, political power, cultural participation and human dignity that currently prevail in the United States. Toppling the looming citadels of concentrated private wealth will help to advance democracy, broad prosperity and justice. That’s a good enough reason to do it, all issues of public revenues aside.

The point is not to operate a massive downward transfer state in perpetuity. Large transfers from the very wealthy to everyone else are certainly necessary during the initial stages of building a more equal society, and some ongoing degree of downward transfer after that will always be necessary, given the fact that absolute equality can never be achieved. But the existence of a permanent secondary transfer system of behemoth proportions is a sign that the primary economic systems for allocating incomes and for building shared wealth are dysfunctional and need restructuring.

Nor is the primary long-term ambition of a neo-socialist political economy oriented toward poor relief. Again, relieving the poor is certainly an urgent task for the immediate future, but it is not the longer term goal. There will likely always be at least some poor and desperately unfortunate people, and so all reasonably enlightened societies throughout history – even most monarchic and oligarchic plutocracies – have created systems for relieving the poor. But the very existence of such a system on an extensive scale is a symptom of social failure, not a goal in itself. Liberal capitalists seem fond of a world in which there are always lots of poor, who are then dependent on the political and economic power of private capital for their relief and survival; and maybe just having lots of needy poor around helps classical liberals feel better about their own ability to express the virtue of charity. But the point for neo-socialists is to build a social order in which everyone is given an opportunity to contribute to society, everyone is rewarded equitably and substantially for the contribution they make, and very few people become poor in the first place.

Tax systems create an incentive structure: they help to determine what kinds of decisions are made within firms about the allocation of returns to capital and to labor, and they help determine how labor income is allocated up and down the compensation ladder within the firm. They also play a role in determining the percentage of profits that are reinvested in developing the firm in contrast to the percentage paid out as dividends to owners.  In a well-designed system of taxes on income, wealth and inheritances, the actual quantity of revenues captured from the top strata would likely be small, and increasingly so as time goes on, because the incentive structure supported by the tax system would deter and prevent people from acceding to those high strata in the first place.

But if we are doing things right, then the fact that we are capturing only a very small portion of revenue from the extremely rich is fine, because there simply will not be many extremely rich people to be taxed. The socialization of education, health, retirement and other fundamental services – within the context of a sensible monetary policy – does require ongoing equilibrating flows of funds, goods and services from the private sector to the public sector and from the public sector back to the private sector. But in a more equal society, these flows look increasingly like transfers from equals to equals: non-market exchanges of the wealth that is generated by some sectors for use by the broader public who work in other sectors.

In a more level society, economic equality is primarily supported not by transfers, but by full employment, by adequate regulation of the income system and by expanded democratic control of capital. Taxes are a key component of the second and third tasks on that list: the regulation of the income system and the democratic restraint of private wealth accumulation. Together with a sufficiently large sector of publicly funded and publicly operated enterprises; a more equal distribution of capital assets across the entire society; and a more democratic system of corporate governance, profit sharing and capital resource allocation, a well-regulated income system can deliver full employment with a very high minimum income, and a greatly compressed gap between the top earners and bottom earners. We could also make more rational and consistent progress on long-term structural transformations and stewardship of the national and global economies, with more of an eye toward sensible strategic planning and resource use, and with less environmentally wasteful, random and disorganized consumption fads and binges.

Given the fact that taxing the rich is politically challenging, to say the least, there is an ever-present temptation to seek progressive workarounds that leave the wealthy alone, and to think entirely in terms of spending programs that redistribute wealth among the middle classes and the poor, and avoid taking on the plutocrats. That’s in part how we got the deeply flawed retirement system we now have, with its inexcusably regressive payroll tax funding mechanism and inadequate payouts, and excessive reliance on privatized retirement plans. But the larger problem with avoiding taxing the wealthy is that it is the very existence of massive concentrated wealth, and the outsized political and social power such concentrations inevitably entail, that lies at the foundation of the twisted and backward regime we live under today.

7 thoughts on “A Neo-Socialist Look at Taxation

  1. Mostly agree (I’m merely skeptical that we’ll ever have a CAPITALIST society that is so inherently equal that taxing the rich will not be necessary and major).

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  2. “The best reason to tax the very rich heavily is, initially, to make them less rich.”

    “The long-term goal of neo-socialist political economy is to build a more equal and a more democratic society”

    While I don’t really disagree with any of this, I want to suggest that it is a rhetorically and politically disastrous position.

    The electorate is convinced by prosperity. It’s the economy, stupid. Talk about fairness and equality, and they change the channel.

    Making “get the rich” the central plank completely validates the right’s rhetorical attack (“they just hate rich people”).

    It both ignores and perniciously undercuts what is actually the left’s strongest argument: progressives are the ones who deliver progress, prosperity, growth, economic freedom, and widespread wealth.

    Despite a century of evidence demonstrating this fact, by pretty much every economic measure, the left leaves this, it’s strongest and most politically appealing argument, lying on the floor mouldering.

    “Make people less rich” is never going to win elections.

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  3. “The best reason to tax the very rich heavily is, initially, to make them less rich.

    The best subsequent reason to tax riches heavily is to prevent people from becoming very rich again”

    Dan, I don’t think you have any clue how the economy works. It’s more like you have a bunch of anger and angst that YOU are not exceptional.

    Digital only make this reality more clear…

    Companies go from zero to billions with very little investment capital, there’s nothing that makes the guys able to do this LIVE HERE.

    But that’s not the main thing…

    Equity = CONTROL of company.

    The WHOLE POINT of having a billion dollar company, isn’t just to know that someday you will be Bill Gates, it is WIELD CONTROL over your creation.

    It’s about DIRECTING Google’s immense wealth into WHATEVER Larry and Sergey WANT!

    Look Dan, for entrepreneurs money is PAINT. It is about DECIDING the shape of the world around us. The wealth simply means control over the billion and bilions of income dollars.

    And DAn, you aren’t part of that.

    You should have NO say in that, bc you have NO CLUE what should be done with it.

    You’ll turn us into India, literally, India.

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    • The WHOLE POINT of having a billion dollar company, isn’t just to know that someday you will be Bill Gates, it is WIELD CONTROL over your creation.

      Yes, of course. Capital and power are fundamentally the same thing. But that control is also control over the future of the world all of us live in. And so I don’t think we should grant that control to a few powerful individuals, but should organize the accumulation and use of capital in a more democratically accountable way.

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      • That’s why you are an idiot. or at least in this case are talking about things you have no idea about.

        Think about it this way… you LIKE Obama taking all kinds of executive action, so even in shitty immoral politics, there has to be a final action taker, a decider.

        But more than that, corporations have to move 100x faster to survive, all day long a single CEO runs the entire thing, he dispatches his management who carry out his wishes – it is always like juggling, never like jazz, the brain has to know that this ball will land here at this time, an time it’s release of the resources to free the hand to deal with it.

        Leaving the power to do this in the hands of the founder, the artist, the visionary who is creating something out of nothing, who grows MASSIVELY WEALTHY as his firm grows, is the ONLY way to get the job growth American has delivered.

        What you are describing is naive and ahistorical – India runs your way (committee decisions all the way thru the corporation) and 100% of their best brains LEAVE India to come here.

        So let me make this clear to you:

        America kicks world’s ass, bc the biggest companies in US, ARE NOT YOUR WAY, bc a few visionaries were given total control over the creations.

        You just are mad it’s not you. Get over it.

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