AEI Says Privatization Unfairly Shifts Taxes to the Wealthy

The article Broad Ownership Needs Broad Taxpaying at American Enterprise Institute Online by attorneys Scott Johnson and John Hinderaker argues in the section The Danger of Democratic Theft that personal accounts will represent a tax cut to the middle class. Therefore "Most Americans would no longer be making any significant contribution whatever toward the maintenance of the federal government. Thus, Federal programs will be essentially free to most Americans leaving the wealthy to finance most of government and "...nakedly expose the tax burden that our personal income tax disproportionately lays on the top 5 percent of Americans."

The call is, of course, to increase the tax burden on lower income taxpayers and reduce the burden on the wealthy in the name of fairness.

I can't believe this is put forth as serious analysis.

Here are some quotes:

Given that poorer citizens always outnumber the rich, political philosophers have long worried that government based on majority rule could lead to organized theft from the wealthy by the democratic masses. "If the majority distributes among itself the things of a minority, it is evident that it will destroy the city," warns Aristotle. The Founders of the United States were deep students of politics and history, and they shared Aristotle's worry.

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Given that one of the causes of the American Revolution was a tax, the Founders understood very well that taxation could become a way for one group to prey on another.

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So why hasn't the majority in America helped itself to more of the minority's wealth, as Aristotle and our Founders feared? Partly because the protections for individual property erected by the Founders have worked. Partly, too, because many Americans' political convictions are (thankfully) based on principle, not economic self-interest.

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Which leads to the question: What will happen if conservatives succeed, as part of their push for an Ownership Society, in redirecting much of the payroll tax from federal coffers into the personal accounts of workers? Most Americans would then be directly supporting the federal government only through the income tax and the few federal sales and excise taxes (e.g., on gasoline). The result: Most Americans would no longer be making any significant contribution whatever toward the maintenance of the federal government.

Any new programs that Congress might adopt would cost the average American little or nothing. He already pays scant income tax, and he would be getting much of his Social Security and Medicare taxes back in the expected personal accounts. So at that point the relatively small number of citizens who make significant income tax payments would be carrying our whole federal edifice.

And there's the rub. "Rebating" a big chunk of payroll taxes back to workers in the form of personal accounts is devoutly to be wished for in most ways. But one troubling side effect of such a transformation would be to nakedly expose the tax burden that our personal income tax disproportionately lays on the top 5 percent of Americans.

Our Founders had no confidence that voters, unmoored from financial responsibility, would refrain from pillaging the wealth of their neighbors. If most of Washington's costs end up piled on just a few backs, the only thing preventing a sharp ratcheting up of the income tax will be the decency and political principle of ordinary Americans.

In that event, we will find out whether Aristotle and James Madison were too pessimistic in their view of human selfishness--or unhappily accurate.

Since the author's place so much faith in Aristotle's beliefs and economics, note that Aristotle also believed it was immoral to charge interest. The reason was that interest made money breed. If you start with $100 and charge 10% interest, the money will grow to $110. Thus, the money essentially had ten dollars in children. But inanimate objects cannot breed. By its very nature, money is barren and the birth of money from money is therefore unnatural. Therefore, charging interest is unnatural. QED.

The authors should endorse Aristotle's economic beliefs and call for the wealthy to lend money at 0% interest. Anything else would be unnatural an immoral.

And what was all that I heard about liberals and class warfare?