This article was originally published by
The Distributist Review on 1 November, 2010
John Médaille’s recent article on the “Fair Tax” stirred up quite a conversation on the nature and acceptability of methods of taxation in relation to distributist principles. Although some of the controversy was due to a misunderstanding of his actual views, distributists do need to present their ideas on taxation to stir up debate in a way that clarifies the issues. I’m hoping this article will be a useful contribution along with Mr. Médaille’s efforts to that end.
To start with, very few people actually argue that there should be no tax to support the functions of government. Distributists accept that government has a proper role in society and needs to exist for the fulfillment of that role. The functions of government have a cost which must be covered, therefore, we must address the question of how a government covers its costs. One option would be for it to engage in commerce to raise its money. The obvious problem with this is that, as the maker of laws which regulate commerce, the government would have a clear conflict of interest if it competed in an activity it also regulated. That only leaves voluntary contributions and taxes. I believe voluntary contributions would only work if we lived in a world without sin, which leaves us with taxation. Taxation takes many forms. There can be taxes on imports, exports, income, inheritance, property, sales, wealth, land and just about anything else, and these can be applied in numerous ways (as the complexity of tax laws prove). The level and method of taxation is directly related to society’s views on the proper role and function of government.
One element of Keynesian economics depends on the continued existence of a very wealthy class who can be taxed in order to redistribute wealth to the poorer classes and thereby stabilize the economy. Because of its acceptance of monopoly, Capitalism is inherently unstable. In order to keep costs down and increase profits for the monopolists, wages are kept as low as will be tolerated. This results in the accumulation of large amounts of wealth among the few monopolists who manage to claw their way to the top. However, because wage earners are also the bulk of consumers who must buy the products, low wages keep them from making purchases and thereby contributing to the profits. Keynes recognized this and proposed that government should redistribute wealth from the rich back to low wage earners through taxation. This would provide the low wage earners with the money necessary to engage in commerce and keep the “economic engine” of Capitalism running.
Many who profess adherence to Capitalism consider this wealth redistribution to be socialist because some who promote redistribution seem to want to use it as a path to Socialism. However, the Keynes method of wealth redistribution was not developed as a transition to Socialism; it was developed as a means to maintain Capitalism. Conservatives and libertarians accuse liberals who promote wealth redistribution of being socialists. While a few may actually be socialists, these liberals are simply advocating a different school of Capitalism – a school which the classic distributists published in 1936 must come into existence in order for Capitalism to survive. This was the same year that Keynes published The General Theory of Employment, Interest and Money. The conflict between these two schools has manifested in the division between the leadership of the Republican Party for the last two decades and the populist Buchanan Republicans, TEA Party activists and Libertarians. This is why, even though the current and last administrations come from different sides of the aisle of political partisanship, the bail-outs of both gave money to the banks and corporations and not to the struggling small businesses, poor or middle class. The economic divide between conservatives and liberals is not that of Capitalism versus Socialism; it is the division of two schools of capitalists who are arguing over how much wealth the government should redistribute. The rich must continue to exist in order for the Keynesian system to work. The big corporations are “too big to fail” while small businesses and the common citizens are too small to matter (except during election season). This is important to understand. In our current system, a key function of government is to maintain the wealthy class while simultaneously redistributing its wealth back to the poorer classes in order to keep the economy going. This is accomplished by taxing the income of the rich for redistribution.
In the next part, I will discuss how Distributism is different from the Keynesian theory.