The Left's Get-Rich-Quick Scheme: Tax the Middle Class

Townhall.com ^ | August 18, 2012 | Daniel J. Mitchell

[Kaslin]

Every so often, you read something so ridiculously stupid and absurd that you assume that you’re being pranked. So you look to the date of the article to see if it says April 1. Or you look at the Internet address to see if it’s a parody of a real website.

So when I read a column suggesting that the United States should become more like Italy, I thought this must be some sort of practical joke. After all, Italy is teetering on the edge of bankruptcy, kept afloat by bailouts and subsidies. Its economy is in the toilet, with pervasively high unemployment, almost no growth for a decade, and living standards that are only about two-thirds of U.S. levels.

The Italian government is also famously incompetent (naming the wrong people to high-level posts), with stifling levels of regulation, a dysfunctional fiscal system, and a corrupt legal system (and when it’s not crooked, it’s inane).

Notwithstanding all these crippling flaws, Italy has something akin to catnip for the left. It has a punitive tax burden, and that means it must be a nation worth emulating.

Here’s some of what Eduardo Porter wrote for the New York Times.

Italy may be in a funk, with a shrinking economy and a high unemployment rate, but the United States can learn a lot from it, and not just about the benefits of public health care. Italians live longer. Their poverty rate is much lower than ours. If they lose their jobs or suffer some other misfortune, they can turn to a more generous social safety net. …The reason is not difficult to figure out: rich though we are, we can’t afford the policies needed to improve our record. …But though the nation’s fiscal challenge has taken center stage in the presidential election campaign, raising more taxes from American families remains stubbornly off the table.

I’m willing to believe Italians live longer, but every other assertion in that passage is upside down. Yes, they have more subsidies for joblessness, but that’s one of the reasons they have higher unemployment (as even Paul Krugman and Larry Summers have acknowledged).

And the claim about less poverty is laughable. I’m guessing the author naively relied upon the slipshod analysis from the statists at the Organization for Economic Cooperation and Development. Those bureaucrats put together a moving-goalposts measure of income distribution and falsely categorized it as a tool for measuring poverty.

Setting aside these mistakes, the column is designed to convince people that we should give more money to Washington.

Citizens of most industrial countries have demanded more public services as they have become richer. And they have been by and large willing to pay more taxes to finance them. Since 1965, tax revenue raised by governments in the developed world have risen to 34 percent of their gross domestic product from 25 percent, on average. The big exception has been the United States. …the United States raises less tax revenue, as a share of the economy, than every other industrial country. No wonder we can’t afford to keep more children alive. In 2007, the most recent year for which figures are available, the United States government spent about 16 percent of its output on social programs — things like public health, food and housing for the poor. In Italy, that figure was 25 percent. …Every other industrial country has a national consumption tax, which can be used to raise a lot of money.

I will give the author credit. If you read the entire column, it’s clear he wants all Americans to pay higher taxes, not just the so-called rich. So at least he’s being honest, unlike a lot of statists (click here for a list of honest leftists who admit you can’t finance big government without screwing the middle class).

But honesty about goals doesn’t mean desirability of policy. If America becomes more like Italy, it will mean Italian-style stagnation and joblessness.

And it’s particularly worrisome to see that the author wants a value-added tax, which is a sure-fire way of giving politicians a big pile of money that will be used to expand the burden of government spending.

I have nothing against copying other nations, either when they get one policy right (such as Estonia’s flat tax or Australia’s system of personal retirement accounts), or when they get a bunch of policies right and routinely rank at the top for economic freedom and prosperity (such as Hong Kong and Singapore).

But I’m mystified by those who look at failure and conclude America should do likewise.

P.S. The Italians have a bad tax system, but they don’t meekly comply. Whether they’re firebombing tax offices or sailing yachts to other countries, they are a powerful example of the Laffer Curve insight that higher tax rates don’t necessarily translate into higher tax revenues.

[Standing Wolf]

...I’m mystified by those who look at failure and conclude America should do likewise.

Sorry, but what's so mystifying about that? Marxists abhor success in all its forms, economic success in particular, and exceptional American economic success most of all. They care far less for wealth than the power to punish those who create it and take it away from them.

[Nip]

I have one minor bone to pick about this article:

“...giving politicians a big pile of money that will be used to expand the burden of government spending.”

If more money is made available for politicians to spend they will spend it the most important government program ever - their reelection.

Like it or not that is the core of most of the spending inside the beltway. Think differently - take a close look at all of the tax code and count the number of exemptions and special clauses. Then look at who put those items into the tax code and where they got big donations for their reelection runs.

While this effort will keep you busy until the third coming of Christ it will be very illuminating.

BTW - the current administration isn't anything new when it comes to this only the most blatant.

[ccmay]

I make this point routinely to my friends and family. All the “tax the rich” chatter is a stalking horse for what they really want, which is to tax the daylights out of everyone. They know good and well that there are not enough rich people to finance their grandiose dreams, and that the real money is within the middle class. But they start with this 1% crap, because it plays well with the envious and lazy. When that doesn’t bring about Nirvana then they will go after the top 2% making $150k or so. Then they’ll ratchet it down, down, down. 100,000; 50,000; 30,000; etc. The way this ends is with anyone caught hoarding two bread crusts instead of one being shot as a class enemy.

[BobL]

“I’m willing to believe Italians live longer, but every other assertion in that passage is upside down.”

They do, but the reason is the same as why the French live longer. They drink red wine, on a regular basis. That’s all it takes.

[BobL]

“The way this ends is with anyone caught hoarding two bread crusts instead of one being shot as a class enemy.”

Sounds like you’ve read up on Soviet history. I wish more people would.