Capitalism? Socialism? Try “privilegism”

December 16, 2010 § 1 Comment

My recent contribution to a heated political and economic debate between Democrats and Republicans in the Rants ‘n Raves forum on the Chicago Craigslist.
Democratic Hottie said the rich should be paying more in taxes.
I agree, to a degree.
Someone else said:


The Democrats want to tax the earnings, take as much as they can, skim as much off the top to support a bloated government bureaucracy, and dole the remaining pennies to those who don’t contribute to the success of themselves, us or the country! That money is used to pay off political cronies, voting blocks and re-election of the politicians themselves. When enough is not available from tax money they borrow more to meet their needs for rewards. No big deal, just kick the can down the road. Let the next generation pay it back.

To a degree, I agree with that too.

Original poster said we are not a capitalistic country, so what are we?

I said we have neither capitalism nor socialism, but “privilegism.”

We set up protected classes and activities where people can get money for adding nothing to society. It’s not just the rich who enjoy these privileges. But in most cases the very rich have made the most use of these special privileges — that’s how they got very rich.

Warren Buffett knows he didn’t earn all those billions through hard work or smarts. Unemployment lines are full of hard-working, smart people. He knows he earned the bulk of this wealth through a system that is slanted to reward certain types of speculation – government privilege-seeking and money-shuffling which do not produce or contribute to the total wealth of society. FIRE sector (finance/insurance/real estate, a big part of the Privilege Sector) substantially consists of this type of activity.

The system rewards insider trading and cronyism. If you have an inside line to government policy, you can profit from it. Or, if you’re in the government. Amazingly, insider trading by members of Congress is still legal.

However. When the Buffet and the rest talk about taxation, they are implicitly talking only about federal income tax. I have reasons to doubt his sincerity when he urges more income tax on the “rich.” He knows that increases will fall not on his income bracket but mostly on the upper middle class. ($250,000 a year isn’t “rich” nowadays, especially if you intend to send kids to college). He knows corporations and billionaires like him can and do escape federal income tax by a variety of means. You cannot close all the loopholes. The internal revenue code and regulations already would fill a small room. Nobody can read it, let alone understand it. You cannot enforce all the provisions without stationing an IRS agent in every home or business. We need to scrap the whole thing and start with something different.

Sales and excise taxes suck too. They hurt those who can least afford them. And who the hell are you to tell me I should pay a tax to enjoy a smoke or a drink? We forget that tobacco and liquor built this country. The farmers mounted a rebellion against Washington and Hamilton because of their regressive excise tax on whiskey. When you look at that bottle of tasty Johnny Walker Black Label that you can’t afford, remember a good portion of the price is the four layers of excise tax (federal/State/county/city). In Cook Co your total tax will be almost 20% of the price.

There is only one kind of tax that falls entirely on unearned income, does not hurt the economy, is naturally progressive, is simple to assess and collect, and pretty much impossible to dodge. And it can’t be passed on to anybody else in the way that business taxes are passed on to consumers (in higher prices) and employees (in lower wages and fewer jobs). The feds don’t consider it because by and large it is not an area that the feds control. That would be a land (and natural resource)-oriented tax system.

Back before they turned economics into mathematical equations and gibberish, they understand that all wealth was based on land. They understood that land is the only thing that can be taxed without diminishing or destroying it. The worst it can do is encourage wiser use, smart growth, and protect the environment – which are good things. Taxing land at a high rate also, amazingly enough, lowers its price ( it encourages more efficient use and kills speculation, which creates artificial shortage, which jacks up prices). Tax land and untax buildings, and housing would become much more affordable. Untax everything else in the economy (excepting direct fees for services or permits, e.g. parking*, hunting or fishing on public lands, etc.), and you lift a huge dead weight off the economy.

Under the Articles of Confederation, most revenue originated from land, under local and State jurisdiction. The federal govt. had the authority to “tax” the States but not individuals. This way you didn’t have the feds in your your home, your business, your bank accounts and your personal files.

It was the failure to design an apportioned land tax system into the 1787 Constitution or subsequent federal law which paved the way for the 16th amendment and federal income tax of 1913, a very poor substitute — or rather, a clever counterfeit.

There are lots of federal lands and offshore waters, too, which are exploited (by timber, oil, mining co’s) for way under what the fedgov could charge. (Recall the Minerals Management Service, literally in bed with oil companies.) These are under federal jurisdiction. The fedgov could begin charging fair market rents to these corporations and cut taxes for the middle class.

Watch this space. And, these guys too.

Happy Thanksgiving, and let’s make the next Thanksgiving one of abundance for all.


* Note: You could make an argument for contracting out parking collection and maintenance, without practically selling off (under the guise of “leasing”) the actual assets, as Chicago has done.


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