By DAVID MOON, Moon Capital Management
George Bernard Shaw was right: the
government that robs Peter to pay Paul can always count on the support of
aren't supposed to question the notion that higher-income wage earners should
pay a greater percentage of their income in taxes ' not just a greater dollar
The notion of a
progressive tax system, however Marxist its origins, is almost universally
accepted as proper social policy. It simply isn't a matter for discussion.
What casual observers
fail to realize, however, is that our system has become much more progressive
than it appears ' perhaps enough so to place the motivational power of the
capitalistic system at risk.
A recent report by the
Tax Foundation reveals the allocation of government expenditures across
different income levels.
It's no surprise that
the poorest of our citizens receive far more in government benefits than they
pay in taxes. But we now have a system where more than 50 percent of the
population receives more in government benefits than they pay in taxes.
Taxpayers in the lowest
quintile ' 20 percent ' receive $8.21 in federal, state and local
government-spending benefits for every dollar they pay in taxes.
Even those in the third
quintile, which includes people in the top half of all wage earners, receive
$1.30 in government spending benefits for every dollar they pay in taxes.
In other words, by
definition, more than half the population is now 'less fortunate.' They are net
receivers of government transfer payments, rather than net payers. Net receivers
don't, on whole, pay into the system.
So they might be
forgiven for thinking that money grows on trees.
To a net receiver, every
dollar of increased taxation results in an increase of more than a dollar in
benefits. It is now in the personal financial interest of more than half the
population for the federal, state and local governments to increase taxes as
much as possible.
Most people who read the
Business section already know that the majority of federal taxes are paid by a
minority of taxpayers. But we've now reached a tipping point where federal
benefits are also skewed to the majority.
Since the people who are
paying for these benefits represent less than half the population, the odds are
stacked against effective political resistance.
In the short term, our
society's economic interests now favor increased taxation. And lots of it. In
the long term, however, this sort of mob mentality ruins the financial incentive
At the margin, it is
more financially rewarding to remain in the majority ' that is to get more than
we pay in taxes.
With that sort of
system, however, you can eventually forget about capitalistic motivations,
entrepreneurship, risk taking and the great innovations that they
Even an old socialist
like Shaw might wince at that.
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).