FEIN: Redistribution blather

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By Bruce Fein

COMMENTARY:

Sen. John McCain's fulminations against President-elect Barack Obama's socialism or infatuation with redistributing wealth were as risible as would be former President Bill Clinton lecturing Pinocchio on the evils of mendacity.

For the last century, both the Republican and Democratic parties have embraced the morality if not the economic wisdom of the progressive income tax and government spending to redistribute wealth. The parties differ in inches as how much redistribution would be morally or economically optimal.

But the Republican and Democratic orthodoxy - held as fervently as the geocentric theory of the universe before Copernicus - are wrongheaded. Morality and economic prosperity militate in favor of turning the prevailing progressive income tax scheme on its head. They also argue against government redistributions of wealth through spending, including the $700 billion Troubled Assets Relief Act of 2008, which was championed by President Bush, Mr. McCain, and the president-elect alike. It lavishly rewards the prodigal, financially irresponsible, and politically connected at the expense of the thrifty and prudent.

All governments are inclined to employ the taxing and spending powers to advantage persons who wield political power - either singly or collectively. During pre-Revolutionary France, the First and Second Estates were exempt from taxation. In the United States, political power has been progressively captured by the masses as barriers to voting tumbled and checks against majoritarian tyranny receded.

Accordingly, government enthusiasm waxed for a progressive income tax and staggering redistributionist spending programs - euphemisms for favoring the middle and lower classes who exercise formidable political clout. The 38 million-member American Association of Retired Persons, for instance, is the most powerful lobby in Washington, D.C.

On the other hand, the rich retain influence in the White House and Congress because money is transformed into political assets through campaign contributions, media advertising, think tanks or otherwise. The precarious balance between numbers and money has occasioned monumental government spending that squanders countless billions on both. The escalating annual spending splurges occasion stratospheric budget deficits foisted on those yet to be born.

Contemporary moral philosophers say progressive income taxation is mandatory because taxes should turn on the ability to pay. (As an aside for the unschooled, a progressive scheme imposes a higher tax rate on additional income as income climbs, for instance, levying a 10 percent tax on the first dollar earned, but a 20 percent tax on the second).

But even "ability to pay" exponents do not believe their slogan. If they did, they would insist that New York's billionaire Mayor Michael Bloomberg pay a $1 million sales tax for purchasing a loaf of bread because he can afford the expense without risking Oliver Twist's impoverishment. They also would denounce as a moral outrage every tax that is not adjusted based on the wealth or poverty of the taxpayer.

In any event, the "ability to pay" standard is morally obtuse. At present, most income is obtained through private market transactions. Income is earned by doing things other persons want done, i.e., giving them satisfaction. The willingness of a private individual to pay from his own resources is the best proxy ever invented for fixing the economic value of the thing provided. Every other standard is hopelessly subjective.

Individuals who earn high incomes through private transactions are thus the true "Good Samaritans" because they give the greatest amount of satisfaction to others. Someone who slaved 24 hours a day digging a hole to nowhere that no one wanted would be economically barren and might be whipped for refusing to do things that others wanted done. So much for Karl Marx's labor theory of value.

By any sensible moral yardstick, high-income earners should be taxed least because they generate the greatest amount of consumer satisfaction. Low-income earners should be taxed most because they create the least social good. Moreover, taxation reduces the amount of the thing taxed by raising its cost. High taxes on low-income earners would reduce their numbers by giving tax relief for earning more.

Government spending programs to redistribute wealth are likewise morally bankrupt. The biblical preference for the poor is not self-evident. Without knowing why an individual is impoverished, it is impossible to know whether wealth from others should be redistributed in his favor.

An individual whose diligence, industry and wisdom have earned great personal wealth by satisfying the wants of others stands on a higher moral plane than an individual whose indolence, indiscipline and criminality have plunged him into abject poverty. Detractors often retort that free will is an illusion and that the poor are compelled by circumstances to indulge vices that hold them back. But if there is no free will, the edifice of morality crumbles.

Life is unfair. Some are born with exceptional aptitudes or talents. Some are raised by loving and stimulating parents, whereas others are orphaned. Some are born into wealth, while others are born into privations. Whatever government efforts might be morally justified to diminish this unfairness, however, they would not include a progressive income tax or an indiscriminate redistribution of wealth in favor of the poor.

Bruce Fein is a constitutional lawyer with Bruce Fein & Associates Inc. and author of "Constitutional Peril: The Life and Death Struggle for our Constitution and Democracy."