America’s Road to Socialism Has Been Cobbled by Taxation and Debt

Every now and again, you’ll hear someone argue that a fundamental transformation of the American economy is necessary because we are in the throes of something called “late-stage capitalism.”  Wealth inequality has reached an unacceptable tipping point, they typically argue, so the only logical solution to this “problem” is to allow the government to disproportionately seize wealth and income from the wealthiest and highest-earning Americans, and then redistribute that wealth to other Americans who need it more. “From each according to his ability, to each according to his needs,” as the policy prescription popularized by Karl Marx goes.

But what I find most curious about this is that Karl Marx might not necessarily see it this way.  Given what we’ve seen in America for the last hundred years or so, he might more aptly suggest that we are in “early-stage communism,” simply waiting for a revolutionary event to secure “full communism” as America’s “mode of production.”    

In The Anti-Capitalistic Mentality (1956), Ludwig von Mises observes that:

When Marx and Engels advocated interventionist measures, they did not mean to suggest a compromise between socialism and capitalism.  They considered these measures – incidentally, the same measures which are the essence of the New Deal and Fair Deal policies – as first steps on the way to full communism.  They themselves described these measures as “economically insufficient and untenable,” and they asked for them only because they “in the course of the movement outstrip themselves, necessitate further inroads upon the social order, and are unavoidable as a means of revolutionizing the mode of production.”

Marx knew that the struggle between socialism and capitalism was a duel to the death, not a negotiation.  An economic system where individuals have fundamental property rights cannot coexist with an economic system which is predicated upon perpetually infringing upon certain individuals’ right to property in order to provide for others.  Only one of these systems could practically, morally, and politically exist in the end.

What Americans don’t seem to recognize, when we speak of our nation as a “capitalist” nation, is that American socialists began cobbling such “inroads upon the social order” a hundred years ago. 

These impositions on the free market began modestly, with a progressive income tax.  

Legally, income tax was always a tricky subject to defend for proponents of Marx’s “heavy and graduated income tax,” which was one of the primary bulwarks, or “planks,” needed for communism to exist, as described in The Communist Manifesto.  The Constitution, on the other hand, had only very few and explicitly defined allowances for the government to levy any “direct” taxes.

But by 1913, American socialists had successfully argued that free markets had allowed the “robber barons” to earn too much wealth, so the government needed to have the power to equalize economic outcomes.  In February of 1913, the Sixteenth Amendment was born.  And with it, America had opened the door to the “heavy and graduated income tax” that Marx prescribed. 

The first tax law wasn’t incredibly “heavy,” to say the least.  The Revenue Act of 1913, arguably America’s first constitutional federal income tax, included seven marginal tax brackets, beginning at 1% for all dollars earned up to $20K annually (or $517K, adjusted for inflation), and capping at 7% for individuals earning $500K (and inflation adjusted $13 million).  Factor in that this law also included the first “standard deduction” of up to $4K ($103K in today’s dollars), along with myriad other deductions, and the end result was that roughly 1% of Americans actually paid any federal income tax at all.

That sounds incredible by today’s standards, right?  A nice compromise for the times, maybe? 

Remember, socialism does not seek to coexist with capitalism, but to replace it.  By 1918, the final year of World War I, there were 55 marginal tax brackets.  If 1913 introduced an American tax law which was “low and narrow,” 1918 introduced a law which was “heavy and broad.”  By 1918, the lowest marginal tax bracket of 6% for incomes up to $4K, while capping out at a whopping 76% at a marginal threshold of $1 million.

There aren’t considerations for any payroll taxes for Social Security in those previously mentioned data, because that socialistic and redistributive government instrument wasn’t instituted until 1935. 

Payroll taxes for Social Security also began small, but they’ve always been more political than practical, and a means to grow the government’s power to redistribute wealth.  “They are politics, all the way through,”  FDR said of his “old age insurance” “premiums,” as he initially pitched them, which ultimately became known as “payroll taxes” when it was discerned that forcing Americans to purchase insurance contracts runs afoul of the government’s limitations as set by the Constitution.  But the government could tax income, thanks to the Sixteenth Amendment, so “payroll taxes” is what we know them as today.

Some other socialists emerged with ideas about growing government in the 1960s.  A redistributive government program to pay for seniors’ healthcare called Medicare was born, and along with it, myriad expansions of the American welfare state, which is nothing more or less than a transfer of wealth from one to provide for another.  It is socialism, in action, and however bad the prospects of the future for Social Security may seem, Medicare (and Medicaid, its offspring) is far more unsustainable in terms of pure accounting.

But we still have the free market, right?  Even with all of those socialistic impositions in the American economy over the last hundred years?

Here’s the truth.  Elements of the free market in America do remain intact because we retain an appreciation of private property rights, and it is only for this reason that the American economy has thrived, in spite of our mild romance with socialism. 

But the story is not over yet.

Over the years, taxes have risen and fallen, but have only become more progressively applied through the years.  Federal revenue has continued growing, and with it, government spending has continued growing with reckless abandon, financed ever more heavily by the highest earners among us.  To put this in perspective, consider that nearly 50% of Americans pay virtually no federal income tax (with most of them actually collecting from the coffers), while the top 20% of income earners provide 87% of federal income tax revenue.

How can any Democrat, with a straight face, suggest that our system is not already designed to uniquely benefit the poor at the expense of higher income earners, whose wealth is already sluiced by the government in such a massively disproportionate manner?

And even this growing federal revenue hasn’t been enough to satiate our voracious leviathan of a federal government that socialistic policies have created.  So, the federal debt has continually climbed.

Over 60% of federal expenditures in 2015 went to finance redistributive social programs, like Social Security, Medicare, unemployment, food stamps, etc., all of which are the primary drivers of our debt. None of that federal spending existed 100 years ago.  Yet in the last 100 years of our over 200-year national experiment, which was fundamentally predicated upon the value of individual economic liberty and a reliance upon free markets, such programs have led to ever-increasing financial liability which have brought us frighteningly near to its potential end.

I can’t help imagining that Karl Marx would smile at that outcome, were he alive today.  Especially since these problems which his socialistic prescriptions created are now being blamed on capitalism!

Reared in the hallowed breeding grounds for socialism that we call academia, millions of young people were enabled by the government to take on loans to get an education which seems to have largely taught them only that someone else, via coerced extraction of wealth by the federal government, should be paying for their education, their home, their healthcare, their food, and all other promises that the socialists currently leading the Democratic Party are only too happy to make. 

These Democrats’ only goal is to grow government.  Growing government requires increasing impositions upon individual liberty and the free market.  And impositions on individual liberty and the free market have led to all of the most prominent and crippling debt drivers that seem to be rapidly bringing the American experiment nearer to its end.

We would do well to remember this anytime a self-described “democratic socialist” suggests that government must be granted new powers to sluice wealth from some Americans to grow the government’s role in providing for other Americans.  However much you may want a compromise between the ideas of socialism and free market capitalism, it’s important to know that “compromise” is not their goal.

Socialism is their goal.  And, as Marx knew, socialism cannot coexist alongside capitalism.  It exists only to destroy the free markets and individual liberty that are so crucial to the American idea.

Listening to the Democrat presidential candidates continually running to their opponents’ left, one can’t help but wonder how near we are to the end of the American experiment.

Image vredit: Pixabay

William Sullivan blogs at Political Palaver and can be followed on Twitter.