Comrade Buchanan

Pat Buchanan has an article in TakiMag today entitled Comrade Barack. Mr. Buchanan opines:

If Barack Obama is not a socialist, he does the best imitation of one I’ve ever seen.
Under his tax plan, the top 5 percent of wage-earners have their income tax rates raised from 35 percent to 40 percent, while the bottom 40 percent of all wage-earners, who pay no income tax, are sent federal checks.
If this is not the socialist redistribution of wealth, what is it?

This is certainly a fair question. There can be no doubt that taking money from some and giving it to others constitutes redistribution of incomes, which many consider to be the essence of socialism. One problem, however, is that the program already exists. It is called the “Earned Income Tax Credit (EITC),” or “Negative Income Tax.” And if it is socialist, it has a rather strange pedigree. It was proposed by Milton Friedman, supported by President Nixon, signed into law by President Ford, and vastly expanded by President Reagan. This is certainly the oddest collection of socialists I have even encountered.

Comrade Pat has been a life-long Republican partisan and a former speech-writer for Ronald Reagan, whom, I suppose, we will now have to refer to as Comrade Ron. But the obvious question is why did Comrade Pat all of a sudden discover the latent socialism in the Democratic candidate, while missing it, for so many years, in his Republican heroes? Okay. Maybe that's not even an interesting question; maybe it is self-evident that a partisan would apply different standards to members of his own party. Nevertheless, Comrade Pat is an intelligent man, and there is a question that an intelligent man, as opposed to a mere partisan, ought to have asked. And the question is this: “Why, in this day of pervasive income taxes, do 40% of all wage-earners earn so little that not only do they pay no tax, but need a supplement from the government?” The answer is a bit more interesting than mere charges of socialism.

The first answer is that they do pay taxes, and at a high rate. They pay the payroll taxes, which amount to more than 15% of their income. Indeed, without the EITC, these workers would pay a larger proportionate share of their income in taxes than does Warren Buffet, as Mr. Buffet himself acknowledges. In truth, we have two systems of income tax, one for the rich and one for everybody else. The rich, whose incomes often derive mainly from capital gains, are taxed at a preferential rates. Long-term capital gains are taxed at 15%, or less than payroll taxes that the poorest workers pay. McCain thinks that even this is too much of a burden for the rich, and wants to cut the rate in half. Of course, both McCain and Buchanan are victims of a flawed economic theory which believes that only capital creates wealth, while labor is, at best, a mere nuisance that should be gotten rid of whenever possible by outsourcing. I won't here go into the flaws in this theory; those who want to examine it more critically can buy my book, The Vocation of Business: Social Justice in the Marketplace. Here we can merely note that if one adds up the costs of tax preferences, the advantage goes to the rich, not the poor.

But there is another reason for the negative income tax, a reason that impressed the Nobel economist and the Republican presidents alike: It helps to stave off economic collapse. The hard, economic truth is that when incomes accumulate at the top to an unreasonable degree, there is a failure of demand. A CEO may make 500 times what the line worker makes, but he cannot eat 500 times the amount of food, wear 500 times the shirts, shoes, and socks, live in a home 500 times larger, etc. This means that purchasing power is lost to the economy, and must be restored. Nor can the rich man find profitable investments for his excess wealth, since the mere excess itself causes the market to be restricted. Instead, he ends up “investing” it in speculative instruments like CDS's, which add nothing to the productive capacity of the economy. They are mere bets, where one man's winnings are measured precisely by another man's losses.

Now, I don't think Reagan was a socialist; we don't have to call him Comrade Ronnie. And one can make a judgment about whether he really cared one way or another about the poor. But he certainly did care about keeping the economy together through the next election. And if that involved running up huge deficits, or transferring a bit of wealth to the poor, then so be it. As Belloc pointed out, capitalism will always result in collectivism and statism, because it has no other way of stabilizing itself.

In truth, the federal budget is mainly about transferring wealth. However, it is largely a transfer of wealth from the bottom and the middle to the top. Farm subsidies penalize the city at the expense of the country, the military budget is less about defense and more about enriching people like Cheney, the road subsidies give an advantage to suburban homeowners over city dwellers, etc. So if in all of these upward redistributions of income, we find a small space for movements in the opposite direction, than people like Comrade Pat should not be scandalized.

Or at least, that's what Reagan thought.