Does Government Create a "Level Playing Field" or Does It Make the Field More Uneven?

Bernie Sanders and other politicians have made socialism attractive to voters, especially young ones, because it promises to eliminate the injustices of capitalism. As to what socialism and capitalism mean, no one seems to care much, other than that by socialism, they mean a kinder, caring society without income extremes, whereas capitalism is the preferred system of ruthless exploiters who amass obscene fortunes while real workers struggle to survive.

In recent times capitalism has been broadly disparaged, including for attacks on Mother Earth and the air Al Gore breathes.

This has to stop. Today’s socialists simply want to make America great—but for everyone.

And that starts with taxation. The very, very rich pay almost no income taxes, and many of the biggest corporations pay nothing. According to the Institute on Taxation and Economic Policy,

Tax-avoiding companies represent various industries and collectively enjoyed almost $40.5 billion in U.S. pretax income in 2020, according to their annual financial reports. The statutory federal tax rate for corporate profits is 21 percent. The 55 corporations would have paid a collective total of $8.5 billion for the year had they paid that rate on their 2020 income. Instead, they received $3.5 billion in tax rebates.

Clearly, income taxation as it exists is grossly unfair even if it is legal. Something must be done if society is to have a future. If taxes are the price we pay for civilization, and society is demonstrably uncivilized, there’s a bug in the system somewhere. But where? Today’s socialists think they know.

It’s not necessarily a case of the super-rich wanting to exert their power over the poor. According to Forbes, “At least a dozen billionaires have made public statements that call for the super-rich to pay more in taxes.” Some mega-rich individuals such as Warren Buffet apparently feel guilty and want government to swipe more of their income. However, surrendering income to a mega thief whose appetite is insatiable doesn’t balance the scales.

If people, regardless of income, had the choice of keeping what they earned, how many would instead turn it over to the government? In all likelihood, they would avoid all thieves, who have a way of wasting what they steal. Instead, people would likely direct more of their money into philanthropic activities, as the super rich did before the Sixteenth Amendment made income theft legal.

So, What Is the Solution?

We need to ask ourselves: Is thievery necessary for civilization? Does making it legal make it any less larcenous? Does stealing more from those who have it add a luster of righteousness to theft?

Most of us were raised with the notion that theft is theft and theft is wrong. If a thief can be duped, so much the better.

The super rich, well aware of their vulnerability, have used the law to protect themselves, as Donald Trump’s now-famous remark to Hillary Clinton, that he was “smart” for not paying federal taxes, reminds us. If you were super rich, you would do the same. It’s merely a matter of buying the right politicians and bureaucrats to complicate the tax code.

Clearly, the oddball organization in all this is the government. It has more guns than Trump—a lot more—plus near-unanimous support from the media. The government could, if it believed its rhetoric, bring any billionaire to his knees. Alas, we are dealing with a corrupt government, easily swayed by the prospect of obscene monetary gains.

Corruption Raised to a Virtue

Once upon a time, governments discovered there are more ways to steal than through direct taxation. Kings and other tyrants noticed that their citizens trusted government coins and began diluting their precious metal content or falsifying their stamped content. The peasants caught on and hoarded the good ones, while using the king’s coins in trade. But the kings caught on and made the peasants pay taxes in good coins.

Much later, when banks got into the act, they noticed their depositors had begun using gold receipts in trade instead of the gold itself. Depositors trusted the banks, but then the banks decided to issue receipts for gold they didn’t have. Unlike the debased coins, a phony receipt looked the same as a good one. People were fooled, but eventually the banks were caught and had to shut down, at least temporarily.

Because banks dealt with money and governments could never get enough of it, the two became close friends. Government passed laws declaring that the banks owned the gold in their vaults, not the hapless depositors. It also created central banks that could control all or most of the banks of the country, as well as the economy itself.

Vera C. Smith addressed the topic of central banking in her 1936 book, The Rationale of Central Banking and the Free Banking Alternative. In the book’s preface, economist Leland Yeager tells us, “A central bank, as Smith noted, is not a product of natural development. It originates through government favors and bears special privileges and responsibilities.” Leland continues,

Typically, it serves as banker for the government and for the ordinary banks and monopolizes or dominates the issue of paper money. From this privilege derive the secondary functions and characteristics of a modern central bank: it guards the bulk of its country’s gold reserve, and its notes and deposits form a large portion of the cash reserves of ordinary banks. It is constrained under a gold standard, though less tightly than competing banks would be, by the obligation to keep its notes redeemable. When unable to meet this obligation, it typically suspends payments and goes off the gold standard, while its notes acquire forced currency. Control over the volume of its own note and deposit issue gives the central bank power over the size or scale of the country’s money and banking system and over the general credit situation. (emphasis mine)

In the US, the Federal Reserve and the federal government have had a cozy relationship for over a century. With gold redemption gone, the only receipts the Fed issues are fake ones, yet they pass as money, by decree. And by purchasing government debt, the Fed helps fund the government’s welfare-warfare expenses.

Given that the Fed has bought the economics profession, its operations are protected from reasonable scrutiny. Inflation, for instance, is usually defined as a volatile rise in the general price level—see the explanations of the Federal Reserve Bank of St. Louis, Investopedia, and the Peter G. Peterson Foundation, for example—not an increase in the money supply, as it was originally understood. The economists tell us a 2 percent price increase is not only acceptable but necessary for a healthy economy. And with its 2 percent target, the Fed is seen as an inflation fighter rather than an inflation creator.

Inflation eats away at the purchasing power of the dollar. Check it out for yourself. It’s effectively a hidden tax. Who is hurt the most: the few holding lots of dollars or the rest holding a few?

And if the few are big enough and can’t pay their bills, who do you suppose bails them out with its power of the printing press?

With the big players protected and even encouraged through what was originally termed the Greenspan put, is it any wonder large discrepancies in income result?

People say they want a level playing field. Rather than giving the known thieves more power, as today’s socialists and progressives want, the thieves should be ousted to achieve this goal.

This article originally appeared in the Mises Institute.

Featured image by Olga DeLawrence via  Unsplash, under the Unsplash license.