Communists Like Thomas Jefferson and Adam Smith

Conservatives often invoke our country’s Founding Fathers as well as prominent historical figures like economist Adam Smith, whose ideas about the “invisible hand” of free markets helped form the theoretical foundation of modern capitalism, when they advocate far-right economic policies. Lately, there has been a lot of talk by GOP presidential candidates about creating a flat tax system in the U.S., particularly from Texas Governor Rick Perry and Godfather’s Pizza founder Herman Cain. Ironically, you’ll never hear a conservative pundit or politician point out that Adam Smith and Thomas Jefferson, among other historical figures, were strongly in favor of progressive taxation.

In a letter he wrote to James Madison in 1785, Thomas Jefferson described an encounter he had with a poor woman who earned hardly anything as a day laborer and struggled to support her two children. The encounter caused him to reflect on the great wealth inequalities that existed then in both Europe and the United States. Jefferson observed,

The property of this country is absolutely concentrated in a very few hands… I am conscious that an equal division of property is impracticable. But the consequences of this enormous inequality producing so much misery to the bulk of mankind, legislators cannot invent too many devices for subdividing property, only taking care to let their subdivisions go hand in hand with the natural affections of the human mind. Another means of silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise. Whenever there is in any country, uncultivated lands and unemployed poor, it is clear that the laws of property have been so far extended as to violate natural right. The earth is given as a common stock for man to labor and live on.

Jefferson clearly advocated a progressive system of taxation (referred to “redistribution of wealth” by Republicans), where the poor would be exempted completely from taxes while taxes rose in “geometrical progression” on wealthier individuals. The statement above nicely fits the theme of the current “Occupy” protests, where hundreds of thousands of Americans have expressed concern about the great wealth inequalities that exist in our country today and the flagrant abuses of corporate power that helped lead to the financial crisis and recession.

What is perhaps most striking about this subject is that the economic inequality that exists in America today is as large as it has been in almost 100 years. The top 1% of Americans control one third of America’s wealth; the top 10% control two thirds. Over the past 30 years the bottom 80% of Americans have seen their share of income drop significantly, while the top 20%, and especially the top 1% have seen their share of income skyrocket. (Click here and here to see some useful charts that illustrate the great wealth divide in the U.S.) Even during the current Great Recession, while CEOs and other corporate executives were running their businesses into the ground, with some businesses receiving taxpayer-funded bailouts, corporate America saw record bonuses awarded.

Adam Smith, who is considered by many as the founding father of modern capitalism, also favored a progressive tax. In his book, the Wealth of Nations, he stated,

The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be anything very unreasonable. It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.

These days, when Democrats advocate progressive taxation, Republicans are quick to paint them as socialists and communists. Just look at Republicans’ reactions to President Obama’s proposal to slightly raise taxes on millionaires and billionaires to help solve our budget deficit, which exists in large part due to a drop in tax revenue. He’s been attacked as a socialist, a communist, and class warrior for espousing such a belief. However, they wouldn’t ever dare give their idols, Thomas Jefferson and Adam Smith, such labels. (Those who use of the terms “socialist” and “communist” to describe the Obama Administration policies show a complete lack of understanding the actual definitions of those terms within political science. But this will have to be a topic for a future post.)

Perhaps the most profound and frightening statistic of the great inequality that exists in the U.S. today is our high ranking on the Gini Index, which measures the degree of inequality in the distribution of family income by country. Third World train wrecks like Uganda, Nigeria, and Nicaragua, have better income equality than the United States. In fact, the U.S. ranks the highest among all developed countries for income inequality. This is not something to be proud of! Democracy cannot flourish without a vibrant middle class. There are many reasons why gross income inequality is bad, including these. But probably the biggest reason is the fact that wealth typically equates to political influence. This is especially true in the aftermath of the Supreme Court’s ruling in Citizens United, which allowed corporations to pour unlimited amounts of money into third party groups such as political action committees that are used to attack or support political candidates. In reality, a flat tax would exacerbate income disparities by increasing the tax burden on the poor and middle class and thus can truly be considered regressive. So the next time you hear someone advocate a flat tax and suggest it is in your interest, unless you are in the 1%, you ought to carefully consider the sage words of Thomas Jefferson and Adam Smith.

6 Replies to “Communists Like Thomas Jefferson and Adam Smith”

  1. Nicaragua has a per-capita income of $1126, Nigeria, $2300, according to http://www.state.gov/r/pa/ei/bgn/index.htm. Uganda doesn't have a per-capita income listed. USA per-capita income is listed as $27,041 at http://quickfacts.census.gov/qfd/states/00000.html. Is it better to have income equality at $2300 income, or to allow some of the Nigerians to break above the equality and have a higher income?

    I would like to hear your opinion on something I have heard as an argument against progressive taxes. Some say that if we tax the rich to help support the poor, there will be more incentive to be poor, and less incentive to work hard and create capital. This, it is said, will cause us to come to an income equality at a low income, like Nigeria and Nicaragua. Do you agree with that? Why or why not, and if so, how can we overcome that deficiency of the progressive tax system?

    1. So a progressive tax scale would incentivize poverty? You REALLY think people hate paying taxes THAT much, that they’d impoverish themselves, and deliberately make too little to put their kids into college? Let me tell you, if I was making enough to ensure my family didn’t have to shop at Aldi’s for food (AND skip 2nds, no matter if they wanted them or not), I wouldn’t CARE about my tax “burden”. Cheap clothes at Old Navy? That’s LUXURY to many! Shop for your kids’ school clothes at the SALVATION ARMY, THEN tell me how tough you have it.

      When Obama was re-elected, O’Reilly commented that “America as we know it” had died out. What he referred to was the almighty-whitey America of the 1950’s…when the tax rate on the rich was 94%. Since minorities today wouldn’t ACCEPT the treatment common from those days, we can meet Bill-O halfway, and restore those tax rates, eh?

  2. Caleb- thank you for reading and commenting. Those are good questions. I definitely do not think that people living in Nicaragua, Nigeria, or Uganda are economically better off than Americans, nor do I think anyone, even among the poor in our country, would prefer to relocate to a third world country. One of the points I was trying to make is that extremely high income disparity, as currently exists in the U.S., is a characteristic common to lesser-developed countries, not modern industrialized ones.

    Regarding your second question, I'm not sure I understand the part about progressive taxation causing the U.S. "to come to an income equality at a low income, like Nigeria and Nicaragua." What do you mean by that? I'll try to answer the first part of your second question here and hopefully that will touch on the second part (but let me know if it doesn't):

    I don't think returning tax rates for those in high income brackets to what they were in the Clinton or Reagan eras would significantly alter the incentive that the wealthy have to work hard and expand their businesses. People in high income brackets fared very well during those periods. And with increased tax revenue, the government could get a better hold on our massive deficit, which would help our economy, and in turn, the wealthy. The Obama Administration proposals for revenue increases are pretty modest and wouldn't have a huge impact on wealthy Americans.

    I think for the working poor, those who are working full-time, yet don't earn enough to feed their family and pay their utilities and thus receive supports like food stamps and utility subsidies, having a relatively lower tax burden compared to the wealthy won't remove their incentive to keep working hard to support their family as best as they can. In many cases, poor and middle class Americans actually pay a greater share of their income to taxes than the rich, when you look at all forms of taxation. As I noted in a previous post, why should billionaire Warren Buffet pay a lower tax rate than his secretary?

  3. A major problem for most of the working poor is that usually they lack the skills requisite to obtain better paying jobs– jobs that pay enough to support a family. And hypothetically, if we were able to provide high-skilled job training to all of the working poor, there wouldn't be enough high skilled, well-paying jobs for them. There are many menial jobs in our country that are important to our economy and thus have to be worked by someone.

    The low-wage labor market typically doesn't pay a living wage. As a University of New York political science professor stated: "if there were jobs that paid living wages, and if health care and child care were available, a great many [men and] women on AFDC [Aid to Families with Dependent Children welfare program] would leap at the chance of a better income and a little social respect." The odd thing is that most of these jobs are doing things that are valued by much of our society. We want to be able to shop at Walmart and find great deals. We like to order inexpensive fast food from McDonalds. We want cheap clothes from Old Navy. We want cheap farm produce and we want our hotel rooms to be clean. The problem is that people working those jobs often don't earn enough to survive. A common myth is that these near minimum-wage jobs are primarily worked by teenagers. According to the U.S. Department of Labor, 2/3 of minimum wage earners are adults. Forty percent of minimum wage earners are the sole bread winners of their families. And for most of these low-wage working poor, there really isn't much upward mobility in their career fields. Working really really hard at McDonalds isn't going to improve one's lot very much.

    Thus programs that help the working poor, like food stamps, subsidized housing, or the new health care reform bill (which will subsidize health insurance premiums individuals and families need to pay) are crucial supports, without which many families just wouldn't survive. These programs do not provide enough support to allow individuals to quit working altogether, as they don't cover all expenses. So there isn't really an incentive to quit. In fact, without such programs, many of the working poor wouldn't be able to continue working. When a minimum-wage earning breadwinner gets really sick, how can they support their family and get the medical care they need? If a minimum-wage earning breadwinner no longer receives food stamps to help feed his/her family and the family begins to go hungry, will that breadwinner be able to continue working at that minimum-wage job? Perhaps he/she would be better able to feed their family by begging for food and going to soup kitchens, or maybe he/she would apply for unemployment benefits after quitting or "getting fired."

    Of course, it is important that social safety net programs are structured with the right incentives– those that encourage people to get back to work (or find better work, if possible). In the late 1990s, President Clinton signed into law a bipartisan welfare reform bill that restructured federal welfare programs. Among other things, it placed limits on how long individuals could receive certain benefits, encouraging them to seek employment. It also strengthened child support and alimony laws, thereby reducing the need for single parents to be on welfare roles. In sum, social safety net programs can be structured in ways that weed out the dole, gives aid to those who really need it, and help people get back on their feet. I think we as a society need to find the right combination of compassion and personal responsibility when creating our safety nets. To often, I hear my conservative friends entirely skip the compassion for the poor principle and demand personal responsibility, when often, the poor are the way they are due to a myriad of external factors.

    Sorry- that was an awfully long answer! But you asked a great question.

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