Ending Tax Socialism

September 13, 1996 • Commentary

It’s time to expose the pretense of morality that is inherent in progressive taxation and to end the system of tax socialism that has eroded economic and personal liberties in the United States. Progressive income taxation should be abolished and replaced with a flat‐​rate tax on income or consumption — not just to enhance efficiency but to protect our rights to life, liberty and property.

In 1848 Marx and Engels proposed that progressive taxation be used “to wrest, by degrees, all capital from the bourgeois, to centralize all instruments of production in the hands of the state.” Although communism has failed, the idea of progressive taxation, as a means of achieving “social justice,” remains ingrained in the modern liberal psyche.

A progressive income tax violates the very heart and soul of the Framer’s Constitution of liberty. Our constitutional democracy rests on the principles that individuals are equal under the law, that consent is the basis of just laws, and that the powers of the federal government are strictly limited. None of those principles are consistent with taxing incomes at progressively higher rates. The Supreme Court struck down early attempts to legislate a federal income tax, until the passage of the 16th Amendment in 1913. When the first income tax was passed by Congress in 1894, the New York Times called the legislation, “a vicious, inequitable, unpopular, impolitic, and socialistic act,” and the Washington Post added, “It is an abhorrent and calamitous monstrosity.”

Because there is no objective way to measure social justice, there is no end to the redistribution that can occur under a progressive tax system. Under such a system, neither persons nor property are safe from the hand of the state.

Conservatives and liberals alike fall into a populist trap by trying to justify some progressivity in order to satisfy the majority’s preference for greater income equality. Elevating the principle of democratic rule above the protection of individual rights to achieve equality of result, however, violates the very rules of just conduct that lie at the heart of a free society. A flat‐​rate tax is consistent with a rule of law and with the principle of nondiscrimination. Everyone would pay the same tax rate, and income from all sources would be taxed only once; there would be no double taxation of interest and dividends. If the flat‐​rate tax were applied to consumption rather than income, the current bias against saving would disappear and economic growth would increase.

One major benefit of a flat‐​rate tax is that it would make the cost of government expansion visible to all taxpayers, especially if combined with a balanced‐​budget amendment. There would be a built‐​in incentive to compare the costs and benefits of new government programs. The invisible hand of the democratic process would then work more judiciously to determine the size of government.

Under progressive taxation, on the other hand, there is a constant temptation to raise tax rates on the rich to pay for new programs. At the limit, persons with high incomes may face a marginal tax rate of 100 percent, while those with low incomes pay nothing. (During the 1950s marginal tax rates exceeded 90 percent in the United States.) That’s tax socialism in spades.

If we let constitutional principles be eroded by majority rule, in the name of social justice, then both freedom and true justice will be lost. Progressive taxation is not a virtue but a vice. It presumes that the property rights of the wealthy are not as sacred as the property rights of the poor and that the values of the majority are superior to the rights of the minority.

Those who support progressive taxation pretend to be on the moral high ground but, in fact, they have no ground to stand on. Envy, not justice, is at the root of the argument for discriminatory taxation. That is why those who most strongly advocate progressive taxation are in favor of the welfare state. “Law is the bond of civil society, and justice is equality under the law,” wrote Cicero. If we are to restore civil society and move from tax socialism to tax justice, we need to abolish progressive taxation, institute a fair flat tax and limit the size of government. Otherwise, class warfare and welfare will prevail.

About the Author
James A. Dorn

Vice President for Monetary Studies, Senior Fellow, and Editor of Cato Journal