The Wall Street Journal has a long article by Sen. Phil Gramm and Steve McMillin that is worth reading. Yeah, it’s on taxes, but it’s interesting enough that even my ADD riddled brain could stay focused long enough to finish it.
And I’m glad I did. It’s filled from start to end with the good stuff.
For example:
While income distribution has become a source of protest and political debate, any analysis of taxes paid in high tax-and-spend countries shows that the U.S. has the most progressive income tax system in the world. An inconvenient truth for the advocates of higher taxes on America’s rich is that big governments in developed countries are funded not by taxing the rich more than the U.S. does, but by taxing everybody else more.
That truly is a game changer for the the debate scene. Talk to any liberal about socialism and eventually two countries will come up: Sweden and France. America has a more progressive tax structure than both of them. So what if we became more like these to liberal wonderlands where taxation is involved?
We’d tax the rich less and the poor more:
The Organization for Economic Cooperation and Development (OECD) data on the ratio of the share of income taxes paid by the richest taxpayers relative to their share of income show that the U.S. has the world’s most progressive tax burden.
The top 10% of earners in the U.S. pay 35% more of the income tax burden than in Sweden and 22% more than in France. These figures—from the 2008 OECD publication “Growing Unequal?”—include all household taxes imposed on income at the federal, state and local level, including social insurance taxes.
In an eternal irony unique to large welfare states, it is the expansion of government in the name of the poor and middle class that always costs poor and middle-class families the most. When the U.S. collects 16.1% of GDP in income taxes, the top 10% of taxpayers pay 7.3% and the other 90% pick up 8.9%.
In France, however, they collect 24.3% of GDP in income taxes with the top 10% paying 6.8% and the rest paying a whopping 17.5% of GDP. Sweden collects its 28.5% of GDP through income taxes by tapping the top 10% for 7.6%, but the other 90% get hit for a back-breaking 20.9% of GDP.
If the U.S. spent and taxed like France and Sweden, it would hardly affect the top 10%, who would pay about what they pay now, but the bottom 90% would see their taxes double.
That’s important information. That’s data you need to commit to memory for the next time you have to debate taxation with either a liberal or an ignorant would-be pundit.
As I have said over and over, France and Sweden may have more government funded programs, like medicine and welfare, but they have to loot more from the citizens to fund it. While you get “free” health care, it’s lower quality health care than the free market would provide and you get less of the property you earn from your labor.
That’s a lose-lose, no matter how you look at it.
The article also describes what would have happened if the tax rate changes made in 1986, 1997 and 2003 werent’ made. Turns out, income inequality would be flatter. So would our wallets:
Lower tax rates made dividend-paying stocks more attractive to high-income investors and made dividend payouts more attractive for companies that would have previously retained those earnings or bought back their stock. Capital trapped in companies with below-market rates of return was redeployed and the entire economy benefited.
All of this has had a huge impact on the measured income of the top 1% and the growth in income inequality. This impact can be estimated by examining what would have happened to the income of the top 1% if tax rates had not been lowered and these economic transformations had not occurred.
If the share of income coming from businesses, capital gains and dividends had remained at the levels before the tax rate changes of 1986, 1997 and 2003 respectively, the income of top 1% filers would have been 31% lower in 2007. The growth in income since 1979 for top 1% filers would have been only 2.5 times as large as the income growth of all taxpayers—not 3.6 times as large.
More businesses would have remained C-Corps and been taxed as corporations, fewer assets would have been sold and thus fewer capital gains would have been declared, and fewer dividends would have been paid. All of this would have lowered the income declared by the top 1%. Economic growth would have been lower and aggregate measured income of all taxpayers would have fallen, but the distribution of income would have been flatter.
That reaffirms an old Winston Churchill maxim:

Sure, we’d all be closer to being equal, but we’d all be poorer, with limited chances of increasing our economic state.
I’ll take income inequality with greater freedom any day.