WASHINGTON. Recently, a number of Democrats called for a complete government take-over of our healthcare system. Since Americans currently spend almost $350 billion annually on healthcare, this and additional features of the Democrats’ high tax, Big Government proposals would result in the Federal government directly controlling another 17% of our economy.
Senator Kamala Harris (D-CA) would like to see “Medicare for All.” Other Senators like Elizabeth Warren (D-MA), Kirsten Gillibrand (D-NY) and Bernie Sanders (I-VT) strongly support the concept. They say that health care is a basic human right and therefore every American should receive health care regardless of their ability to pay.
Big Government consequences: Taxes must increase significantly
To pay for this and the rest of the Democrats’ high tax, Big Government programs, Democrats want to raise the top marginal income tax rate to 70% and add a brand new tax on wealth. They say this will enable the Federal government to increase the amount they take from American taxpayers to well over the nearly $4 trillion they now collect annually.
In total, government at all levels takes about 25% of our income, courtesy of the GOP tax bill. This is significantly less than the 33% average rate for most major economies, making our economy competitive again.
The Democrats’ high tax policy proposals raise a very basic question: “What, exactly, is the role of government in the US economy?”
While there is some debate about the size of government and the depth of its role, there has generally been an accepted answer. The Preamble to the US Constitution says that the purpose of our Federal government is to “establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare and secure the blessings of liberty to ourselves and our posterity.” That, of course, is open to some interpretation.
Function of Big Government: Providing public goods
The Preamble’s definition highlight two basic Big Government functions as they are currently interpreted.
- Providing public goods
- Providing income maintenance programs
Public goods, like a legal system, defense of the country and education, are services available to all members of society. They are provided essentially without a direct cost. Instead, they are supported through the taxation of the entire population.
There is some debate regarding which goods should be considered public goods. For instance, the conclusion regarding education is that government, mostly at the local and state levels, should consider Kindergarten through 12th Grade as a public good. Recently some discussion revolves around the idea of declaring at least two years of college a public good.
Function of Big Government: Income redistribution
The second general function of Big Government is to redistribute income away from those who have earned it and toward those, who, for whatever reason, have not earned it. This “taking” involves taxing income, wages, consumption and/or some assets. The resulting revenue is then given to individuals via Federal “entitlement” programs. Currently, these include Social Security, Medicare, Medicaid, Welfare, Food Stamps, unemployment compensation, what remains of Obamacare, and other income maintenance programs.
The Democrats’ high tax proposals ask us to determine if healthcare and another two years of education should be considered a public good. If so, then Congress must raise taxes significantly from current levels. In so doing, however, they must confront the inevitable problem of efficiency loss. This occurs when the government moves a service from the private sector to the public sector.
The Dems argue that the US is the world’s wealthiest country and can afford these programs. They also note that the average rate of taxation in the US is low when compared to the rest of the world. Therefore, Congress should raise the level of taxation. Considerably.
Consequently, they propose to increase the average tax rate by initially holding the middle rates constant while doubling the rates for the highest income earners. With that increase, the US average tax rate would be about the same as the world’s average.
More on the Democrats’ high tax rates
The Democrats also argue that high tax rates won’t necessarily slow economic growth. They observe that the highest tax rate at one time was 70% in the 1950s. They say the economy grew faster than it is growing today, and regard this as proof of concept.
It appears, however, that most Americans do not embrace the Democrats’ high tax, Big Government ideas.
The Constitution tells us that the Federal government must “secure the blessings of liberty to ourselves and our posterity.” This means that the government must provide income maintenance in such a manner that encourages individual freedom and individual responsibility. The government must also recognize that actions taken today that don’t place unbearable burdens on future generations.
A smaller, less intrusive government seems to be the way to accomplish that most efficiently. That means less taxation, not more. It also means economic growth, not curing perceived social injustices, should be the top priority of the Federal government.
Debunking the Democrats’ high tax argument
The Democrats’ high tax arguments are easily debunked. By raising the top income tax rates, less capital would be created. This would slow growth in today and tomorrow’s capital intensive economy. In the 1950s, America ran on a labor-intensive economy that didn’t need large amounts of capital. Today, US tax policy should encourage capital formation to encourage economic growth.
The US transformed itself from its birth to the present to become the most powerful and prosperous nation in the world. It took about 150 years. Other countries are hundreds, and even thousands of years older, yet never achieved this status. The Unitied States did. It happened because we had a freedom-oriented republic characterized by small government and low taxation.
In 2018, the economy likely grew at over 3% annually. That’s the best year since 2005. That growth occurred because Congress finally cut income taxes. In addition, Congress and the Trump White House eliminated hundreds of growth-stifling regulations.
Lower taxes and less government led to more growth. More growth means more opportunities and a higher standard of living for all Americans.
Conclusion: Reject the Democrats’ high tax, big government proposals.
— Headline image: Cartoon by Branco. Reproduced with permission and by arrangement with Comically Incorrect.