Tuesday, February 12, 2019

The Difference in How Socialism and Free Markets Work in the Real World

Sebastian Gorka

If the future of the nation were a function of logic, then conservatives would have a very easy job.

No debate would be needed, really. In the choice between the two competing models Judeo-Christian civilization has given us, with socialist arguments for “big government” on the one side and a market-oriented system that favors the freedoms of the individual over the powers of the state on the other, there would be no contest.

In fact, it would indeed be a formal “no contest,” as only one of the models has ever been realized in the real world in which we live.

Adam Smith, Friedrich Hayek, Ludwig von Mises, and Milton Friedman may have had impeccable credentials in terms of theory, but the whole point of their work is that it occurred within the reality of functioning free markets.

The Laffer Curve was never condemned to remain locked within an ivory tower, solely to be read on the pages of a peer-reviewed journal. The ideas of these philosophical and economic greats were deployed in real time, in the real world, by democratically elected statesmen and leaders such as Ronald Reagan and Margaret Thatcher.

These ideas actually worked in practice. The same cannot be said of the theories of Karl Marx, Friedrich Engels, or Mao Zedong.

Since “The Communist Manifesto” and the later “Das Kapital” were published, nowhere on the planet has the system therein envisaged ever actually been implemented as designed.

Oh, yes, more than 40 countries as culturally diverse as the Soviet Union, Venezuela, and Vietnam have called themselves “socialist” states or said they were implementing the theories of Marx, Mao, and Lenin.

But not one of them ever achieved the vaunted goal of the “Workers’ Paradise.” Not one of these experiments ever resulted in the objective Marx declared for his theory in 1875: “From each according to his ability, to each according to his needs.”

Not one.

Instead, wherever socialism was tried, from Moscow to Beijing, from Havana to Pyongyang, the world witnessed the same result: oppression of the masses, power and wealth for the party nomenklatura, and most often an eventual economic collapse. This was so even in the country of communism’s birth, the Soviet Union, which imploded on Christmas Day 1991 under the weight of Marxism’s inherent contradictions.

The Conservative Response

As a result, Marxism and socialism have just remained theories, while democracy and capitalism became unbelievably vibrant realities from Great Britain to Poland, from America to Japan, from Estonia to India.

These realities have taken poor countries such as Singapore and turned them, in the space of less than two generations, into international success stories that Marx, horrified as he was by the smokestacks and exploitation of the textile mills of the Industrial Age, could never have imagined.

So how should conservatives respond to the cries of the millennials who so desperately wanted Sen. Bernie Sanders to become the 45th president, and who tell us: “What about Scandinavia and the Nordic states? What about Sweden, Norway, and Denmark, what about the socialist states of Europe that provide equality and welfare?”

Well, yes, these states value the individual over the collective, and they do provide incredibly generous welfare nets. But this has nothing to do with “command economies” or one-party states.

In fact, Danish Prime Minister Lars Lokke Rasmussen has had enough of this repeated calumny of the nations of Northern Europe. During a recent speech here in the United States, he said “some people in the U.S. associate the Nordic model with some sort of socialism.”

But, Rasmussen said, “I would like to make one thing clear. Denmark is far from a socialist planned economy. Denmark is a market economy.” He added that his country is “a successful market economy with much freedom to pursue your dreams and live your life as you wish.”

 Sound familiar?

The truth is, the Nordic and Scandinavian nations have built incredibly equitable societies with provisions for the needy because of their decidedly unsocialist history, and thanks to the free market. All of them have histories as successful capitalist economies, often based on shared centuries of mercantilist competition, with Norway additionally being one of the world’s largest exporters of oil, allowing it to fund its generous benefits.

And truth be told, the largesse that the peoples of these states have shown themselves by erecting welfare states built upon the profits of the past is straining their national coffers today, as their populations age and the costs of their welfare programs eat away at the limited taxes the state can collect. As a result, expect to hear more statements such as the one made by the Danish prime minister.

‘One More Try’

But what of the other riposte: that all of the past’s socialist “experiments” failed simply because the wrong people implemented them? The logic here being that all you need is the right “elite” to make Marx’s dream become reality, not equality to be realized.

Maybe. Or maybe not.

As Einstein taught us, systematic repetition of failure accompanied by the expectation of getting a different result is the definition of insanity. After a century of trying, with hundreds of millions of people used as guinea pigs, where is the realistic and moral justification for “just one more try?”

Most importantly, look at the facts that left-wing historians gave us in “The Black Book of Communism,” wherein they provided an accounting of all the attempts to create functioning Marxist states. The authors concluded that attempts to realize the “socialist state” led to the programmatic deaths of over 100 million human beings, from the gulags of Siberia to the killing fields of Cambodia.

As a result, one more try at Marx’s idyll would seem not only immoral, but to dishonor the memories of those killed in the name of a man-made utopia.

So how it is that the conservative argument for the American dream is still not triumphant? How is it that of all the Democrats who ran for office in the November midterm elections, more than 40 proudly declared themselves “socialists,” including the new face of the party, Alexandria Ocasio-Cortez?

And how is it that according to the latest annual poll by the Victims of Communism Memorial Foundation, a stunning 52 percent of millennials would like to live in a socialist or communist America? How is this possible?

Simple. More than ever, politics today is a function less of verities than emotional connection. A sense of authenticity over the rectitude of any suggested policy.

It is no accident that President Donald Trump was the star of his own reality TV show for 14 seasons before he ran in a presidential campaign during which he defeated 16 rivals for the GOP nomination, 14 of whom were established political names.

More importantly, as members of a philosophical community that shares the same commitment to the economic and political principles that define our view of America, we have failed utterly to understand the role of the dreaded word “narrative.”

Square One

Most Americans are apolitical and couldn’t tell you the difference between Matt Drudge and Paul Krugman. They want to be able to pay the bills at the end of the month, and to feel secure about their future and the future of their families. But even the most apolitical American citizen associates certain key characteristics with each side of the political divide.

The left is seen as having an almost monopolistic hold on compassion, on caring for those who need help the most. The right today is identified by only negatives: lack of compassion, greed, exploitative big business. Even capitalism is understood as a dirty word, redolent of cronyism and unaccountable profiteering.

For those who not only believe but know that free markets and democracy have empowered hundreds of millions of people to live freely and climb out of poverty, in fact more than any other political philosophy has ever done, we must go back to square one.

Our challenge is not one of facts and figures, but emotions, of talking in ways that connect to souls held hostage to the utopian panaceas of false prophets and idols.

The ancient Greeks who carved the foundation stones of our future civilization, who invented political philosophy, wrote almost exclusively about one thing: What is the “good?” What is a “good society,” and what makes for a “good” man or woman?

In the years since the end of the Cold War and the presidency of Ronald Reagan, conservatives have allowed the pernicious and deadly ideas of the left to become exclusively associated with the “good.”

Our job is simple but hard. We must show—not tell—our fellow Americans that the good is inextricably tied to freedom, to small government, to free markets, and to earned success, and that circumscribed lives, big government, constrained economies, and federal handouts destroy the soul and sap the life blood of healthy societies.

With his capacity to connect to the forgotten men and women of America, to the unemployed steel workers of the Rust Belt, with his ability to win over black communities in numbers we have not seen in decades, Donald Trump has opened a window for the conservative movement of the 21st century.

Now it is our job to convince fellow Americans that the principles of our Founding can provide for them better than any version of socialism ever could, that American exceptionalism is real and “good,” and that all of us can be a part of the American dream no matter who we are.



To soak the rich, keep tax rates low

by Jeff Jacoby

SOAK-THE-RICH tax schemes are in vogue on the left these days.

Democratic Party heartthrob Alexandria Ocasio-Cortez made a splash last month when she went on "60 Minutes" and proposed a 70 percent marginal tax rate on incomes over $10 million. "People are going to have to start paying their fair share in taxes," she said.

From Senator Elizabeth Warren comes a proposal to levy an annual wealth tax on the net worth of American households with more than $50 million in assets. Vermont Senator Bernie Sanders has drafted a proposal to sharply increase the federal estate tax, imposing a top rate of 77 percent on estates worth more than $1 billion.

The details of these plans differ. But all of them are premised on the belief that wealthy Americans don't pay an equitable share of the tax burden, and that a more progressive tax code will not only be fairer but also raise more revenue.

For some politicians, taxing the wealthy more harshly seems as much a matter of retribution as of fiscal policy. "The rich & powerful run Washington," tweeted Warren as she released her tax plan. "It's a system that's rigged for the top if I ever saw one." Sanders routinely inveighs against "the greed of Wall Street, the power of gigantic multinational corporations, and the influence of the global billionaire class."

Americans have traditionally been cool to such overt class-war rhetoric, but maybe that's changing. Recent polls show broad support for raising tax rates on the very wealthy. A Hill-HarrisX survey in January found that nearly 6 in 10 registered voters favored raising the top income-tax rate to 70 percent. Strong majorities of Democrats (71 percent) and Independents (60 percent) backed the idea, and even 45 percent of Republicans expressed support. Other surveys have yielded comparable results, as Politico reported in a story headlined "Soak the rich? Americans say go for it."

Yet however popular it may be to claim that millionaires and billionaires don't shoulder their share of the tax burden, it isn't true. The federal income tax is highly progressive. The ultra-wealthy not only pay far more than their fair share in taxes, but the portion of the tax burden they shoulder has grown significantly in recent decades.

Each year the Internal Revenue Service releases voluminous data on American taxpayers, sorting scores of millions of tax filers by adjusted gross income and share of income taxes paid. Each year the data confirm that while those at the top of the hill reap an outsize portion of the nation's income, they pay an even more outsize portion of the nation's taxes.

Thus, in 2016, the top 1 percent of taxpayers earned 19.7 percent of all the income — more than $10 trillion — reported to the IRS. To put that in raw numbers, 1.4 million taxpayers (out of 141 million) reported $2 trillion in income (out of a $10.2 trillion total). But the top 1 percent didn't pay 19.7 percent of federal income taxes. They paid 37.3 percent. In other words, while they earned somewhat less than one-fifth of all reported income, those in the 1 percent contributed somewhat more than one-third of all income taxes. According to the Tax Foundation, the top 1 percent paid roughly $538 billion in income taxes, considerably more than the $440 billion in income taxes paid by the bottom 90 percent.

For the "tippy top" — the wealthiest one-10th of 1 percent — the disproportion is comparable. In 2016, the uppermost 0.1 percent of taxpayers earned 9.5 percent of all income, yet they paid more than 18 percent of all income taxes.

By any definition, America has a progressive tax system.

Could it be made more progressive? On paper, sure. Hiking the top marginal tax rate from the current 37 percent to the 70 percent urged by Ocasio-Cortez would represent a dramatic increase in progressivity. Even more dramatic would be to push the highest rate above 90 percent, where it used to be when Dwight Eisenhower was in the White House.

Liberals are fond of pointing out how much higher tax rates used to be. Unfortunately for AOC, Warren, et al., dramatically higher tax rates at the top didn't result in dramatically higher tax revenues flowing to the Treasury. Throughout the 1950s, the effective tax rate paid by the "tippy top" was about 21 percent, barely more than the 19.7 percent paid in 2016. Wealthy taxpayers have many wholly lawful ways to avoid exorbitant tax rates, and routinely control the timing and content of their income to avoid them.

More to the point, there is an inverse relationship between marginal tax rates and the tax burden on the rich. As a rule, the lower the rates, the more the wealthy pay. It may seem counterintuitive, but experience has shown again and again that the best way to "soak the rich" is to keep marginal rates low. When Ike was president, tax rates were indeed sky-high. Tax revenues weren't. It was only after Reagan came along and chopped the top tax rate to 28 percent, however, that dollars came gushing in to the IRS. Class-war strategists may chafe at that, but it's the way the world works.



Cuomo announces income tax revenues have dropped by $2.3B

Reality strikes even a Leftist sometimes: “God forbid if the rich leave”, he says. Boca Raton calls

Gov. Andrew Cuomo announced Monday that state income tax revenues plummeted by $2.3 billion since he introduced his new budget plan last month — a bombshell that will force him to curb spending.

Cuomo attributed the revenue drop in December and January largely to the new federal tax code, as well as volatility in the stock market and other uncertainties.

“That’s a $2.3 billion drop in revenues. That’s as serious as a heart attack. This is worse than we had anticipated,” the governor said in Albany. “This reduction must be addressed in this year’s budget.”

In a rare joint appearance with Cuomo, state Comptroller Tom DiNapoli confirmed the deteriorating finances. “This is the most serious revenue shock the state has faced in many years,” he said. He urged Cuomo and the Legislature to sock more money away in the state’s rainy day fund to prepare for the worst.

Cuomo had planned to spend $176 billion — including about $100 billion in federal funds — in the new fiscal year that starts on April 1.

Cuomo’s preliminary analysis claims much of the impact is coming from a drop in revenues from the state’s highest income earners most impacted by the loss of write-offs of state and local tax deductions, known as SALT. The federal law approved by President Trump and the then-GOP controlled Congress limited SALT deductions to $10,000.

The loss of revenue from New York’s wealthiest puts New York in a bind because the state relies on a progressive income tax system that taxes the rich at a higher rate. One percent of the state’s top income earners provide 46 percent of the state’s personal income tax revenues, officials said.

Cuomo said Albany can’t go to the well and tax the wealthy again because that would only worsen the situation, citing “anecdotal” evidence that high-income New Yorkers are already fleeing the state to lower-tax jurisdictions. He offered no figures to back up the claim.

“I don’t believe raising taxes on the rich. That would be the worst thing to do. You would just expand the shortfall,” he said. “God forbid if the rich leave.”



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