POLITICS | TAXATION

Abolition of Income and Inheritance Taxes Under Capitalism (Part 5 of 10)

BY GEORGE REISMAN | APR 29, 2023

A possible way to start on the elimination of the income/inheritance tax right now would be to fight for the immediate adoption of a universal exemption of at least 51 percent of everyone’s income from federal, state, and local income taxation under all circumstances.

This article is excerpted from chapter 20 “Toward The Establishment of Laissez-Faire Capitalism” from George Reisman’s Capitalism: A Treatise On Economics (1996). See the Amazon.com author’s page for additional titles by Dr. Reisman.

The total abolition of the personal and corporate income taxes and of the inheritance tax is an essential feature of a procapitalist political program. It is required by the individual’s right to his own property. In addition, progress toward the abolition of these taxes helps to create the conditions required for economic progress, by increasing economic incentives and the ability to save, both of which serve to promote capital accumulation and thus a rising productivity of labor and rising real wages.

It must be stressed that the more rapidly economic progress can take place, thanks to reductions in the income and inheritance taxes, the more rapidly can the relative size of the government in the economic system be reduced. The consequence of this is that the degree to which people must experience the burden of the government’s exactions is correspondingly diminished. If economic progress can take place at a rate of, say, 3 percent a year, then even if government activity were not reduced at all, the relative size of the government in the economic system would be cut in half in a single generation. For in that time economic progress at a 3 percent annual rate would have succeeded in doubling the size of the economic system. Thus, the burden experienced even from supporting a government of the same size would be felt much more lightly.

These facts imply two important principles pertaining to our political program. First, in reducing income tax rates, our primary emphasis should usually be on reducing the maximum rates, until there exists only a single proportional income tax rate. Reductions in the upper brackets have the greatest impact in strengthening economic incentives and saving, and thus do the most to bring about economic progress. We need to make the public aware of how everyone benefits from these tax reductions–of how they operate to raise the demand for labor and thus wages, and, at the same time, progressively to increase the productivity of labor and thus the supply of goods relative to the supply of labor, which steadily reduces prices relative to wages and thereby steadily raises real wages. Of course, once the so-called progressive aspects of the income and inheritance taxes have been eliminated, work should immediately commence on the steady reduction in what remains of those taxes, and should continue until they are totally eliminated.

Second, a closely related minimal short-run political demand we should make is that the level of real per capita government spending be immediately frozen, so that it does not exceed its current level. Such a demand would be a call not for the immediate abolition of the welfare state and improper government activity of all kinds, but a demand for an immediate cessation in their further growth. Its implementation would result in a continuing automatic shrinkage in the relative size of the government, so long as economic progress continued.

A possible way to start on the elimination of the income/inheritance tax right now would be to fight for the immediate adoption of a universal exemption of at least 51 percent of everyone’s income from federal, state, and local income taxation under all circumstances. This would be in the name of the principle that the individual is the owner of his own income. The 51 percent exemption would constitute meaningful recognition of this principle. Over the years, we would work to increase the tax exempt portion of everyone’s income while reducing the rates on the taxable portion, until the income tax was totally abolished. Given the drastic reductions in welfare-type spending I have proposed and the achievement of economic progress, it should be possible to phase out the income tax entirely over the course of a generation.

The same phase-out procedure should be applied to the corporate income tax. In addition, in the short-run, we should demand the elimination of the double taxation presently entailed in the corporate income tax. It represents double taxation for a corporation first to be taxed on its income, and then for the stockholders of that corporation to be taxed again on what they receive from their own corporation, which has already paid a substantial income tax. The principle of the 51 percent exemption and its progressive enlargement should be applied to the total of every individual’s personal income plus his share of the profits of any corporation in which he owns stock.

However, the most important short-run goal that we should emphasize in connection with taxes is compelling the government to respect the ordinary civil rights of taxpayers. We should demand the abolition of criminal penalties for income-tax evasion, in the name of the principle that an individual cannot steal or fraudulently keep what is his own property to begin with. Also, just as in the case of government agencies seeking search warrants, we should demand that the Internal Revenue Service be compelled to obtain a prior court order authorizing any seizure of property or attachment of salaries and bank accounts it wishes to undertake. If it is not possible to obtain such elementary protection of individual rights, then a compromise that at least would be a move in the right direction would be the existence of automatic judicial review of all such IRS activities. And until criminal penalties for not paying taxes are eliminated, we should demand that the Fifth Amendment rights of individuals to remain silent in order not to incriminate themselves be applied to taxpayers, i.e., that no criminal penalties exist for failure to file an income tax return. In other words, we should demand that taxpayers, who are presently subject to criminal law, enjoy the full civil rights accorded to criminals. In answer to objections that the income tax cannot work without the violation of elementary civil rights, we should reply that if that is the case, then it is further proof of why the income tax must be abolished. So long as the supporters of the income tax wish to retain it, we must demand that they accept the burden of finding ways of harmonizing it with respect for such rights.

A further principle that I believe should be applied in connection with proposals for the reform of the income tax is that no reductions of any kind should ever be made in existing tax exemptions, shelters, or so-called loopholes. Our principle should be that no one’s income taxes should ever be increased over what they would be under existing law. It is true that the various exemptions, such as for interest paid on home mortgages, have some economically distorting effects by artificially encouraging some types of economic activity at the expense of other types, but those distortions will become less and less significant with the reduction in the burden of the income tax, and will disappear altogether when it disappears. We should take the position that every reform of the income tax must serve to reduce the income taxes paid by some or all people, and not increase the income taxes paid by anyone.

Still a further principle that we must uphold concerning tax reform, and one whose necessity should be obvious on the basis of all the preceding discussions concerning the role of capital formation and the consequences of inflation, is that tax reductions must be accompanied by equivalent or even more than equivalent reductions in government spending–specifically, in nondefense spending primarily. In view of the highly destructive effects of budget deficits, it should be clear why tax cuts must be accompanied at least by equivalent reductions in government spending of one kind or another. Deficits, it should be recalled, deprive the economic system of the benefit of the portion of the supply of savings that must be used to finance the deficits. In the absence of a gold standard, they also lead to the rapid inflation of the money supply, which, of course, also undermines capital formation. Cutting taxes without cutting government spending, therefore, is no solution for reducing the government’s assaults on the economic system.

The reason the reductions in government spending must be primarily at the expense specifically of nondefense spending is that defense is one of the few legitimate functions of government. Spending for defense should be cut only as it becomes genuinely safe to do so. It should be blatantly obvious that we should never advocate imperiling the defense of this country, which means, essentially, the defense of such freedom as exists in the world, in order to preserve any aspect of the welfare state. Indeed, our need for national defense exists for no other reason than to prevent the imposition of the underlying premise of the welfare state in a more extreme and more consistent form by outside military force. That premise, of course, is that some men have the right to enslave others for the satisfaction of their needs. Thus, not only must we never dream of sacrificing national defense to any aspect of the welfare state, but what we want national defense for is precisely to protect us from the logically consistent version of the welfare state that is represented by totalitarian socialism. Furthermore, what we should advocate in connection with national defense is overwhelming military superiority for the United States. That is our only real guarantee of avoiding war. If we have such superiority, we will not start a war, and it is unlikely that anyone else will dare to do so.

Copyright 1996 George Reisman. All rights reserved. The encyclopedic Capitalism: A Treatise on Economics is a required reference for every Capitalist’s library. Reisman’s treatise is now available in two volumes: Volume I (focuses on microeconomic issues) and Volume II (focuses on macroeconomic issues).

Articles in this Series

• Toward the Establishment of Laissez-Faire Capitalism (Part 1 of 10)
• Privatization of Property: Importance of Fighting on Basis of Principles (Part 2 of 10)
• The Freedom of Production and Trade Under Capitalism (Part 3 of 10)
• Capitalism and the Abolition of the Welfare State (Part 4 of 10)
• Abolition of Income and Inheritance Taxes Under Capitalism (Part 5 of 10)
• Establishment of Gold as Money (Part 6 of 10)
• A Pro-Capitalist Foreign Policy (Part 7 of 10)
• Separation of State from Education, Science, and Religion (Part 8 of 10)
• A General Campaign at the Local Level for Laissez-Faire Capitalism (Part 9 of 10)
• The Outlook for the Future of Capitalism (Part 10 of 10)

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GEORGE REISMAN

George Reisman, Ph.D., is Pepperdine University Professor Emeritus of Economics and the author of Capitalism: A Treatise on Economics. See his Amazon.com author’s page for additional titles by him. Visit his website capitalism.net and his blog atGeorgeReismansBlog.blogspot.com. Watch his YouTube videos and follow @GGReisman on Twitter.

POLITICS

• Abolition of Income and Inheritance Taxes Under Capitalism (Part 5 of 10)
• The Goal of Socialism
• Capitalism and the Abolition of the Welfare State (Part 4 of 10)
• Patriot Act 2.0 on Steroids? The Restricting the Emergence of Security Threats that Risk Information and Communication Technology Act
• The Tax Code: A Playground for the Few, A Labyrinth for the Many
• Privatization of Property: Importance of Fighting on Basis of Principles (Part 2 of 10)
• California Gasoline Price Gouging Bill Does Not Address Root Problem
• Capitalism and The Exploitation of Third World Countries
• Toward the Establishment of Laissez-Faire Capitalism (Part 1 of 10)
• Federal Deposit Insurance Corporation (FDIC): No Banking System Savior Then or Now

CAPITALISM REVIEW

• Ayn Rand vs. “Liberals”
• Yaron Brook: Elon Musk’s SpaceX Rocket Termination Was a Success
• DeSantis Disappoints
• Tucker Carlson Leaves Fox News: Aftermath of Dominion Voting Systems Defamation Trial?
• Governor Ron DeSantis Letter to Biden: Let Novak Djokovic Play Tennis in the US
• Yeonmi Park: Woke Revolution in America Imitates North Korea Regime
• Burning The Wrong Witch: The Demonization of J.K. Rowling
• Yaron Brook & Elan Journo: Nationalism Hostile to America
• James Toohey: Global Lessons for High Caliber, Low Cost Education
• Corporations as ‘Creatures of the State’ is a Socialist myth

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But there’s always a purpose in nonsense. Don’t bother to examine a folly–ask yourself only what it accomplishes. Every system of ethics that preached sacrifice grew into a world power and ruled millions of men. Of course, you must dress it up. You must tell people that they’ll achieve a superior kind of happiness by giving up everything that makes them happy. You don’t have to be too clear about it. Use big vague words. ’Universal Harmony’–’Eternal Spirit’–’Divine Purpose’–’Nirvana’–’Paradise’–’Racial Supremacy’–’The Dictatorship of the Proletariat.’ Internal corruption, Peter. That’s the oldest one of all. The farce has been going on for centuries and men still fall for it. Yet the test should be so simple: just listen to any prophet and if you hear him speak of sacrifice–run. Run faster than from a plague. It stands to reason that where there’s sacrifice, there’s someone collecting sacrificial offerings. Where there’s service, there’s someone being served. The man who speaks to you of sacrifice, speaks of slaves and masters. And intends to be the master. But if ever you hear a man telling you that you must be happy, that it’s your natural right, that your first duty is to yourself–that will be the man who’s not after your soul. That will be the man who has nothing to gain from you.

Ayn Rand, The Fountainhead

Those of us on the side of civilizational sanity need all the help we can get in pushing back against the onslaught.

Last Friday, I attended the Heritage Foundation’s 50th Anniversary Gala, a sprawling and swanky affair featuring many fine presentations, a surprise Dierks Bentley mini-concert for the country music enthusiasts (yours truly among them) and an extravagant post-dinner fireworks show over the Potomac River. But the highlight of the evening, bar none, was former Fox News star Tucker Carlson’s electric keynote address and his (all-too-brief) colloquy on stage afterward with Heritage’s exceptional new president, Kevin Roberts.

Carlson’s speech was both wildly entertaining and poignant, at times slapstick funny and at other times humorously self-deprecating about his Episcopalian faith. But as Carlson began to reach his peroration, the key substantive takeaway he wished to impart unto his audience became clear. The relevant political and cultural battle lines in the year 2023 are not those befitting a civil and polite discussion where both sides are reasonable, both sides pursue their own version of the common good and the best think tank white paper wins out in the end, Carlson cautioned. No, our current civilizational struggle is not reflective of a refined policy debate between amicable partisans; rather, it is one that implicates fundamentally distinct theological and anthropological visions of mankind—of man’s very biology and his relation with his fellow man, the state, and God Himself.

I immediately hearkened back to an interview Claremont Institute President Ryan Williams did with the far-left Atlantic in October 2021, where Williams had this provocative (but accurate) line about America’s contemporary fault lines: “Even during the Civil War—I think we’re more divided now than we were then. As Lincoln said, we all prayed to the same God. We all believed in the same Constitution. We just differed over the question of slavery.” This is the precise sentiment that Carlson was getting at in his keynote speech at the Heritage gala last Friday.

We in the audience did not know it yet, at the time of Carlson’s speech—nor did Carlson, for that matter—but the broadcasting star had already given his last searing monologue for Fox News. In a stunning development, Fox News broke the news to their highest-rated host on Monday morning that he was fired. Hopefully, Carlson will retain something approximating his exceptional level of cultural and political influence in whatever role he next serves, because his witness to truth and civilizational sanity has never been more necessary.

This is perhaps most clearly true when it comes to gender ideology and transgenderism, which is the issue most directly implicated by Carlson’s framing of America’s fundamental divide as a struggle between differing theological and anthropological conceptions of man. Is sexual dimorphism an obvious empirical reality, rooted in Genesis 1:27, and mandating legal codification for any regime that claims a basis in truth and justice? Or is gender instead “fluid,” wherein man can replace God and change his gender on a lark, and wherein it is contemptible bigotry to deny anyone’s subjective sense of biological or sexual reality?

Tucker Carlson certainly knew his answer: He opened a memorable 2021 interview of former Arkansas Governor Asa Hutchinson by asking the then-sitting governor, who had shamefully vetoed a bill to protect vulnerable children from the predatory scalpels of the woke-besotted medical establishment, why he had “come out publicly as ‘pro-choice’ on the question of chemical castration of children.” Oof.

That is not a debate where the “best white paper wins.” It is a zero-sum contestation of clashing visions of the human person, rooted in diametrically opposed substantive underpinnings. And, more to the point, the forces of godlessness, paganism, and civilizational arson certainly already treat the debate over gender ideology as a vicious winner-take-all battle.

The recent mini-insurrection in Nashville, which followed the tragic shooting of a Christian school and the temporary expulsions of two insurrection-complicit state lawmakers, can best be understood as one elaborate attempt to distract the public from the real issue: That a transgender lunatic shot up a Christian school, and that law enforcement has thus far been unwilling to defy the transgender lobby’s not-so-thinly-veiled blackmail, opting instead to deep-six the deceased shooter’s presumptively anti-Christian manifesto.

More recently, a similar situation unfolded in the state House in Montana, where Republicans banned a transgender lawmaker from attending or speaking during floor sessions following that lawmaker’s comment, during the debate over an anti-chemical castration bill similar to the one Hutchinson vetoed in Arkansas, that the lawmaker hoped colleagues would see “blood on (their) hands” when they bowed their heads in prayer.

Numerous protesters were arrested and forcibly removed from the legislature earlier this week, as they agitated in favor of the uncouth transgender lawmaker.

Large swaths of the modern Left have made the fight for gender ideology and transgenderism their foremost hill to die on, precisely because they are so infatuated with their own vogue anthropology and “theology” that they view the other side—the side of sanity—as wholly undeserving of the civility and respect that a normal exchange over public policy might entail. I know this all too well, myself: My writing that invariably elicits the most protests when I speak on university campuses is a short piece I wrote a few years ago praising U.S. Court of Appeals for the Fifth Circuit Judge Kyle Duncan’s admirable use of biologically correct pronouns in a judicial opinion. I’d write the same thing again today.

But those protesters, whether in Nashville, Helena, Stanford Law School, or another academic corridor, are not open to rational debate. They are not willing to be reasoned with. Rather, they know their conclusions, because they have fully imbibed a highly fashionable—if false—anthropological and “theological” conception of man. Those of us on the side of civilizational sanity need all the help we can get in pushing back against the onslaught.

Josh Hammer, American Greatness

Are there still Democrats who believe in the First Amendment while being wrong about many other things?

I don’t know.

But if there are, Kennedy’s candidacy will be a thorn in the side of the Commie fascists who control the Party. Destabilizing the DemComs would be a good thing, even though election fraud still ensures the ruling regime won’t go anywhere.

Michael J. Hurd, Daily Dose of Reason

DeSantis: Disney has “no legal right to corporate welfare.”

Absolutely correct. Nor does ANY business, large or small.

To paraphrase Ayn Rand, government and business should be totally separate in the same way, and for the same reasons, as church and state are separated.

Get government the hell out of business and wealth redistribution forever. End income taxes and most taxes as we know them. Defund the IRS immediately. Defund the EPA, the CDC, the FBI and most Cabinet departments immediately. The federal government is wildly and irredeemably out of control, using its power to go on the warpath against innocent citizens. The only peaceful way remaining? Defund and shut most of it down. Go back to funding only what the original Constitution provided: a military to protect our borders. Fire the woke generals. Call a Convention of States, not to rewrite the Constitution but to reaffirm it and to shut down and defund our corrupt federal government asap.

Too radical? Just wait to see what life under an unlimited and unaccountable government will be like after 1 or 2 more faux election cycles. Then talk to me about too radical then.

See: conventionofstates.com

Michael J. Hurd, Daily Dose of Reason

The thing about corporations in a fascist economy, as opposed to a free market economy? They can do stupid things — and not worry. In a free market economy, they would pay for doing stupid things; but not in a fascist economy.

Fox just lost it’s biggest money maker — the biggest money maker EVER. A profitable business would not have let this happen, not even for the sake of settlement in a lawsuit. Clearly, political factors — not economic or business factors — were at work here. It seems unlikely that Tucker Carlson, given the nonstop display of courage on his part over the years, and his stance on issues — would participate in some coverup to conceal what was actually quitting on his part. And why would he quit?

The behavior of Fox resembles the behavior of CNN and other propaganda companies who don’t worry about lower ratings or massive losses in profits. Why — you’d almost think they’re getting their money from somewhere else.

In our now fully developed fascist system that used to be American (more or less) free market capitalism, the federal government acts the same way. They’re brazen to the point of bragging about the weaponization of the DOJ, the FBI, the IRS, the CDC and everything else. They’re only starting to flex their muscles. In 2022, the propaganda media’s own polls showed a massive bloodbath in the Congressional elections with Republicans as the victors. We saw what happened. In 2020, neither the media nor the Party expressed concern about having the least visible, least capable, least cognitively present presidential candidate in all of American history, a candidate literally confined to his basement as the vote counts shifted from defeat to victory in the wee hours of the morning. “No worries. Wink wink. We’ve got this,” seemed to be their attitude throughout both 2020 and 2022. And it’s the same about the 2024 election, as poor Donald Trump and Ron DeSantis prepare to go through the motions of providing us with a show where we already know the ending.

I suppose the lesson here is: If you’re a totalitarian authoritarian fascist oligarchy, and you have ALL the money behind you and ALL the force of government behind you — then you have no worries. You can now count Fox News among them.

Michael J. Hurd, Daily Dose of Reason

While campaigning in 2019, Joe Biden guaranteed “we’re going to end fossil fuels.” What he didn’t say is that eliminating fossil fuels will create a troublesome scarcity of electricity. He also didn’t say that was part of the plan, even though it just might be.

Now with the power of the presidency behind him – again we ask, how could such a disastrous event happen? – Biden is just a few pages of paperwork away from forcing natural gas- and coal-fired power plants to sharply cut their greenhouse emissions. If the emission caps can’t be met, power plants will then have to adopt carbon capture technology, which is quite expensive.

Our friends at the Committee to Unleash Prosperity had an interesting response to the news.

“Ben Franklin,” they said, “is often heralded as the man who discovered the power of electricity. Joe Biden wants to be the president who abolished it.”

Output cuts that will be required under the proposed regime “are so stringent,” says the CTUP, that “fossil fuel plants – which supply around 65% of America’s power – would be technologically incapable of complying.” The only way they will be able to stay open and generating power is if Americans’ utility bills are raised “dramatically.” If not, they close, and the power they produce is gone.

The administration knows this. The administration doesn’t care. The administration, driven by the hard-left zealots that run the Democratic Party, wants the rest of us to make do with less.

It’s the much same in California, where progressive politicians are committed to an unachievable target: As 2045 expires, all retail electricity sold in the state and used in government buildings must be produced by renewable resources, which are effectively limited to solar and wind.

Actually, the objective can be met. But there won’t be enough electricity to meet demand because the natural gas and nuclear power that’s taken off line won’t be fully replaced, so California is looking at a future of blackouts, rationing and rates more punishing than they already are. Either policymakers are aware of this and it doesn’t bother them, or they are completely inept and incapable of critical thinking.

We are naturally reminded of Ida Auken, the Social Democrat member of the Danish parliament, who in a World Economic Forum essay insisted that in the future we will own nothing and be happy. The headline – “Welcome to 2030: I own nothing, have no privacy and life has never been better” – made it clear that some powerful people are trying to turn the world into a commune which they of course will run…..

Issues & Insights

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ORGANIZATION TRENDS

The Anti-American Left: Communophilism

To Joshua Muravchik, “communophiles” could be distinguished by their virulent criticism of capitalist democracies like the United States, which they considered so flawed that they needed radical transformation, rather than mere reformation. Credit: Jmuravchik. License: https://bit.ly/3HHc8Rh.

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byRobert Stilson

APRIL 12, 2023

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The Anti-American Left (full series)
Communophilism | IPS and the National Lawyers Guild
Democratic Socialists of America | Alliance for Global Justice
The War on Terror and Code Pink | Russian Invasion of Ukraine

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Summary: The United States of America has arguably been the single most indispensable force for global good over at least the past century. Yet a distinct and longstanding vein of activism on the American Left—the anti-American Left—argues that American influence is harmful and deleterious to the well-being of the rest of the world. The anti-American Left’s fault lies not in its criticism of any given aspect of American foreign or domestic policy—on the contrary, criticism can sometimes be productive. The real harm is in its incessant and dishonest portrayal of the United States as some uniquely malevolent global influence, while brushing aside the brutality of some of the world’s true bad actors and ignoring America’s unparalleled (if imperfect) record of confronting them. What’s more, in many cases the anti-American Left receives substantial funding from mainstream philanthropy—wealthy individuals and foundations that have benefited tremendously from the peace and prosperity engendered by American military power and the global spread of democratic capitalism.

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Communophilism

The conclusion that the United States of America has functioned as the single most indispensable force for global good over at least the past century is rather difficult to escape. While it didn’t come close to doing it alone or doing it perfectly, the list of alternative historical outcomes that the United States can plausibly be credited with preventing is long, cumulative, and scary. Likewise, despite regular setbacks and failures, the broad global trend toward economic prosperity, geopolitical stability, and respect for human rights has been driven largely by the model of capitalist democracy championed by the United States and its allies.

Understanding the opposite perspective—those who not only disagree with this assessment but criticize American influence as harmful and deleterious to the well-being of the rest of the world—can be equally difficult. This is especially true with domestic critics, over whom interstate rivalries, cultural differences, and an allowable degree of historical subjectivity should wield considerably less influence. Indeed, a distinct and longstanding vein of activism on the American Left advocates almost exclusively from this viewpoint—an ideology that might collectively be termed the “anti-American Left.”

It is important to clarify a distinction between “anti-American” and “un-American,” for the latter not only conjures up troubling ghosts of mid-century McCarthyism, but also implies that expressing opinions on matters of public importance, no matter how radical or unpopular, is something less than fully American. The truth is of course precisely the opposite, and reasoned criticism is often constructive.

Rather, “anti-American Left” refers to those domestic activists and groups that—consistently and almost without exception—depict the international influence of the United States in a negative light. Blanket criticism of American foreign policy is a core tenant of their activism. Put another way, the anti-American Left operates from the basic premise that the less the United States involves itself in world affairs, the better. Classically, such activists tend to espouse strong anti-military and anti-capitalist convictions, and they generally consider the two concepts to be inextricably linked.

Those associated with the anti-American Left are also conspicuous how they often portray foreign authoritarian regimes, in terms ranging from equivocation to qualified support to outright praise. Almost as a rule, poverty, corruption, political repression, human rights violations, and armed violence in such places are minimized or explained away by blaming the United States in some manner. Cuba is probably the paradigmatic example, but Iran, Venezuela, Nicaragua, China, North Korea, Russia, Syria, and other countries are regularly held up as victims of American and/or Western “imperialism.”

Hostility toward Israel is also a defining feature, as is opposition to the North Atlantic Treaty Organization (NATO) and other supranational entities in which the United States plays key roles. The pattern often appears to simply follow the inverse of how well-aligned a given foreign government or international institution’s interests are perceived to be with the interests of the United States.

This is not a new phenomenon. Back in 1984, author Joshua Muravchik coined the term “communophilism” to describe a particular form of leftism with distinctive features that didn’t quite fit within existing patterns of liberalism, socialism, or communism. To Muravchik, “communophiles” could be distinguished by their virulent criticism of capitalist democracies like the United States, which they considered so flawed that they needed radical transformation, rather than mere reformation. They were broadly sympathetic toward foreign communist and other far-Left movements without being beholden to any specific one, though they did tend to favor those originating in the Third World over the Soviet model. While noting that there was no “strict consistency,” Muravchik argued that communophiles evidenced “a general attitude that the future of mankind lies, as it should lie, with the communist world.” Although the world looks rather different in 2023 than it did in 1984, much of Muravchik’s “communophilism” analysis remains relevant to understanding contemporary activism.

Plumbing the anti-American Left’s funding is also important. It is one thing for a group of radical activists to form a small nonprofit to promote their fringe views. The barriers to doing so are relatively (and rightly) low. It is another thing entirely for those same radical activists to receive funding from some of the largest and most sophisticated grantmakers in the country. This is a crucial prong to understanding the issue: In many cases the anti-American Left receives substantial funding from mainstream philanthropy—wealthy individuals and foundations that have benefited tremendously from the peace and prosperity engendered by American military power and the global spread of democratic capitalism.

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In the next installment, Institute for Policy Studies opposed the Vietnam War and stood in solidarity with North Vietnamese communists.

Tags:Alliance for Global Justice, Code Pink, Ford Foundation, Foundation to Promote Open Society, Institute for Policy Studies, National Lawyers Guild, radical Left, Tides Foundation, Vietnam War

Robert Stilson

Robert runs several of CRC’s specialized projects. Originally from Indiana, he has a B.A. from Hanover College and a J.D. from University of Richmond School of Law, where he graduated…

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WELFARE

Capitalism and the Abolition of the Welfare State (Part 4 of 10)

BY GEORGE REISMAN | APR 23, 2023

The savings of individuals would steadily replace taxes as the source of provision for old age.

This article is excerpted from chapter 20 “Toward The Establishment of Laissez-Faire Capitalism” from George Reisman’s Capitalism: A Treatise On Economics (1996). See the Amazon.com author’s page for additional titles by Dr. Reisman.

Let me now present a program for accomplishing what many people believe to be simply impossible politically, namely, the abolition of the welfare state.

Elimination of Social Security/Medicare

The social security system, together with medicare, could be eliminated by means of the following steps. First, following a grace period of perhaps two or three years, to provide sufficient warning and time to adjust, there should be an immediate rise in the age at which individuals are eligible to receive social security and medicare benefits, from 65 to 70.

As compensation for the loss of these benefits, individuals in the age bracket 65 to 70 should be made exempt from the federal income tax on whatever earnings they derive from employment. The result would not only be an enormous reduction in government expenditures, but a substantial rise in government tax revenues as well. The rise in tax revenues would come about because the people in the 65-70 age bracket would now pay more in the form of sales, excise, and property taxes, as the result of their having and spending higher incomes. And they would pay more in the form of state and local income taxes as well.

If enacted today, this part of the proposal for abolishing social security and medicare would cut the costs of these programs on the order of a third.

But there is more. As part of the same legislation that quickly raises the social security retirement age to 70, the age at which people are eligible to receive social security and medicare benefits should be further increased, say, by an additional calendar quarter with the passage of each subsequent year. Under this arrangement, individuals who wished to retire at age 70, despite the progressive rise in the social security retirement age beyond 70, would have an additional year of notice in which they would have the opportunity to accumulate additional savings to take the place of the loss of each successive three months’ social security/medicare benefits.

For example, those age 64 at the time the social security/medicare phase-out began, would have an additional year in which to compensate for the rise in their prospective social security retirement age to 70 [and] 1/4. Those age 63 at the time, would have two additional years in which to compensate for the prospective rise in their particular social security retirement age to 70 [and] 1/2, and so on. Possibly, the additional savings such individuals would need to make could be made tax-exempt, under an IRA-type arrangement. (Savings in the government’s budget achieved by the initial rise in the retirement age to 70 would help to offset the revenue loss of making these savings tax exempt.)

All by itself, the progressive rise in the social security retirement age in this way would slowly operate to abolish the system. However, I do not believe the system’s demise should be allowed to drag on indefinitely. I think that no later than twenty-five years after the initial rise in the social security retirement age to 70, the system should accept its last new beneficiaries, who would then be 76 [and] 1/4. By that time, everyone would have had in excess of 25 years to make provision for his own retirement at age 76 [and] 1/4.

It should be realized that the progressive elimination of the social security/medicare system would operate to promote savings and capital accumulation. The savings of individuals would steadily replace taxes as the source of provision for old age. The increased capital accumulation that this made possible would, of course, increase the demand for labor and the productivity of labor, which means that it would increase wage rates and the supply of goods, which latter would operate to reduce prices. Thus, real wages and the general standard of living would rise. The rise would be progressive insofar as the rate of capital accumulation was increased.

* * *

While the total abolition of social security and medicare must always be one of our long-run goals, an immediate way to begin reducing the cost of these programs would be for the government simply to make the kind of tax-exemption offer I described above, to everyone eligible to receive these programs’ benefits. Namely, so long as anyone eligible to receive such benefits abstains from doing so and continues to work instead, his earnings from employment will be exempt from the federal income tax. Being enabled to keep almost all of one’s earnings might make it worthwhile for many people to keep on working some years longer, rather than accept social security and medicare. Not only would the government’s outlays be reduced as the result of this measure, but, as I noted before, its revenues would almost certainly increase. If enacted, this proposal would achieve some significant immediate good, and, in addition, help to prepare the ground for further reductions in the cost of social security and medicare.

It should also be noted here that the phaseout of the social security and medicare programs, or the undertaking of any other measure that would be accompanied by an increase in the number of people seeking employment, calls for an intensification of efforts to abolish or restrict as far as possible prounion and minimum-wage legislation. This is necessary in order to make it possible for the larger number of job seekers to find employment.

Elimination of Public Welfare

The public-welfare system, including food stamps and rent subsidies, could be substantially eliminated within a few years. What would need to be done is to begin reducing welfare payments for able-bodied adults and for minors above the age of fourteen by, say, 10 percent per year across the board, until those payments fell substantially below the wages of the lowest-paid workers. Aid to dependent children below the age of fourteen could be gradually abolished by a law declaring children born more than one year after its enactment to be ineligible for receipt of such aid. Henceforth, dependent children of welfare recipients would have to be supported out of the welfare payments of their parents, which would be steadily reduced. Thus within a few years, welfare for able-bodied adults would cease to be economically significant, because all such adults would be confronted with a situation in which they would be substantially better off taking even the lowest-paid jobs. Within fifteen years, aid to dependent children would cease entirely, whereupon the whole welfare program would be without economic significance.

As previously noted, at the same time that welfare benefits were being reduced, legislation limiting employment opportunities would also have to be abolished or at least progressively restricted, such as the minimum-wage laws and prounion legislation. In addition, restrictions on the employment of teenage juveniles would have to be eliminated in conformity with the immediate reductions in welfare allowances to teenage children. The abolition of these restrictions on employment opportunities are necessary to provide people presently receiving welfare benefits with a realistic alternative of living by working. Finally, the reduction in government expenditures for welfare could be earmarked for increasing the personal exemption from the income tax of people who are gainfully employed. This would further increase the economic advantages of working over being on welfare.

My reason for suggesting the gradual reduction in welfare benefits rather than their immediate or very rapid total elimination, is to allow time for large concentrations of people on welfare, such as in Harlem in New York City, to move to areas that offer better prospects for employment; and, at the same time, for new industry to move into areas such as Harlem, in response to the existence of large numbers of people willing to work for low wages. The gradual reduction in welfare benefits would also allow time for private charitable efforts to develop to deal with the cases of individual suffering not caused by the fault of the individuals themselves.

Once public welfare benefits were reduced to a level substantially below the wages of the lowest-paid workers, the problem, as I have said, would cease to have much economic significance. Almost everyone would be working who was able to work. The system could then be reduced further by totally denying benefits to any able-bodied person, or to anyone suffering as the result of his own irresponsibility, such as drug addicts and alcoholics. After some years, once the government had ceased to be regarded as offering anything but the most minimal relief from want, and private charity had been reestablished in the public’s eyes as the place to which the indigent must turn, the remaining public welfare system could probably be totally abolished, practically without being missed.

A vital aspect of the campaign for the abolition of the welfare system must be the conversion of intellectual opinion among the groups most affected. They must understand that the system’s demise is indispensable to the genuine assimilation of all groups into American society and essential to the opportunities of every person now on the welfare roles who would like to make something of his life, and to the opportunities available to his children.

* * *

When I first wrote the above discussion of the elimination of the welfare system, I believed that the element of gradualism was necessary not only for the reasons stated but also if efforts to eliminate the system were to have any hope of gaining significant public support. On this score, it appears that I may have been wrong. For example, the state of Wisconsin now intends to remove people from the welfare rolls after two years if they turn down a job or job training, and Governor Weld of Massachusetts wants to compel welfare recipients to find work within sixty days or else lose their cash benefits or take state-provided community-service jobs. It remains to be seen whether such policies, which apparently give no thought to the need to abolish the obstacles presently standing in the way of employment, can not only be enacted but also be maintained in the face of the serious hardships that are likely to accompany them.

Elimination of Public Hospitals

Public hospitals and public clinics could also gradually be abolished. Their operation and the ownership of their assets could be turned over to recognized private charities, which would temporarily receive public funds to finance their operation. But the appropriation of public funds for such purposes would steadily fall, again, say, at a rate of 10 percent per year. These charity hospitals and clinics would be empowered to charge fees to their patients, at their discretion, to help compensate for the loss of government funds. It should be expected that the elimination of government control would be accompanied by major reductions in the costs of operating these hospitals and clinics. Medicaid could be phased out in step with the reduction in the public funds turned over to the now private charity hospitals and charity clinics. (Obviously, it would be extremely desirable if this process were accompanied by the most rapid possible liberalization of the licensing requirements for entry into the medical profession and for the ownership and operation of hospitals and clinics.)

Firing Government Employees and Ending Subsidies to Business

I believe that it is possible to fire government employees and abolish government subsidies to business with the support of the groups concerned. This can be accomplished by making the termination of employment or loss of subsidy to the immediate financial self-interest of the parties. What could be done is to offer very generous severance terms, in the form of the continued payment of the salary or subsidy for a limited time, during which the parties would be fully free to change over to any alternative private, unsubsidized activity they wished.

Thus, for example, a government employee presently receiving a salary of, say, $30,000 a year and whose job deserves to be eliminated might continue to receive that salary for a full year, while being free to do anything he wished in the way of private economic activity. He would be in a position to take a substantially lower-paying job in private industry and use his severance pay to tide him over until he had gained sufficient work experience to increase his earnings to a level comparable to what they had been before. Or he could go to school and in that way very comfortably learn the skills necessary to earn an income in private industry comparable to what he had earned as a government employee.

In comparison with the present situation, such an arrangement would be very much in the self-interest of the general, taxpaying public. The financial burden of the taxpayers would certainly be no greater than it is now, and it would, of course, be reduced as soon as the severance pay of the government employees came to an end. Moreover, to the extent that the government employees are presently engaged in carrying out policies of destructive interference in the lives of the citizens, the public would enjoy the immediate gain of the end of some part of such interference. It is a comparatively minor evil to pay a simple dead weight subsidy to former government employees now engaged in other activities, when the alternative is to continue to support them as destroyers. Of course, in order to prevent anyone from taking unjust advantage of such a plan, government employees who received its benefits, should thereafter be barred from government employment (other than elective office) for a protracted period of time, perhaps for life–unless they refunded the extraordinary severance pay they had received.

To the extent that the former government employees turned to seek jobs in private industry, their competition would cause the money wage rates of the average worker there to drop. This would be the case both insofar as they entered the labor market prior to the reduction in government payrolls and in taxes and insofar as, when it came, the reduction in government payrolls constituted a drop in the aggregate demand for labor. (This last would be the result to the extent that taxpayers spent the funds they no longer paid in taxes to meet government payrolls, in buying goods rather than in paying wages.) A tendency toward a drop in wage rates would, of course, also be present as the result of the phasing out of the welfare system and of social security, inasmuch as both would bring about an increase in the supply of labor relative to the demand for labor.

As the readers of this book should know by now, the effect in all these cases would be benevolent. For the necessary fall in wage rates would be accompanied by reductions in prices that would be still greater. This is because the employment of more workers means more production and thus lower prices caused by more supply, as well as the saving of taxes to support the unemployed or unproductively employed. The fall in prices relative to wage rates, moreover, would be a continuing one, because the effect of reduced government spending, reduced taxation, and reduced government interference in general is increased capital accumulation and thus a rising productivity of labor. Capital accumulation and the rise in the productivity of labor would be the result both of a greater relative production of capital goods and a higher productivity of capital goods. The greater relative production of capital goods would be made possible by reduced government spending and lower taxes and thus more saving and productive expenditure relative to consumption expenditure. The higher productivity of capital goods would be the result both of lower taxes and thus greater incentives to use capital goods efficiently, and of reduced government interference of other types that stands in the way of the efficient use of capital goods.

It follows, and deserves to be stressed, that the long-run effect of firing unnecessary government employees is to progressively increase the economic well-being of those employees, along with that of everyone else, and that this is true even in the absence of any severance pay. The former government employees also benefit from the additional capital accumulation and rising productivity of labor and real wages that are made possible. They too benefit from the fact that more people now contribute to production instead of having to be supported out of the production of others, and that production is no longer held down by their activities.

Essentially the same conclusion applies to welfare recipients. In the long run, they too would be economically better off living as self-supporting wage earners in a progressing economy than as welfare recipients. Their gain would come not only from the economic progress or more rapid economic progress that abolition of the welfare system would greatly contribute to, but also, and in many cases even more importantly, from having at long last to develop and actualize their innate human potential, which the welfare system has permitted them to avoid doing. Being compelled at last to work in order to live, many of them would accept that necessity and strive to do better at it, whereas at present they need strive for nothing and thus develop into nothing.

There is absolutely no kind of magic or “free lunch” assumed here. The source of the universal gains is an increase in production. Every individual’s removal from an unproductive or destructive position in government employment or on the welfare rolls, to a positive, productive position in private employment, adds to the total of what is produced and contributes to the further increase in the total of what is produced, through making possible additional capital accumulation. It is because of this increase in total production that everyone is in a position to gain, with no one having to lose. It should actually be no more surprising that former government employees end up being economically better off without their government jobs than that blacksmiths and horse breeders end up being better off without their former jobs–and that they do so, even if they must settle for a relatively lower position on the economic scale. Indeed, it should be less surprising when one considers that the nature of so many government workers’ jobs is precisely the stifling of innovation and improvement and that the loss of such jobs means precisely the opening of the way to progress and improvement. By the same token, the gain of former welfare recipients from the abolition of welfare should be no more surprising than the gain of someone needlessly confined to a hospital from his discharge and emergence into the world of life and action.

Every serious advocate of capitalism has always been able to understand such facts in connection with the so-called long run. The proposal I have made about generous severance pay for government employees makes it possible for a harmony of material self-interests to exist even in the very short run.

* * *

The principle of generous severance terms could be applied to the elimination of government subsidies to business, in the following way. As compensation for the abolition of a subsidy, the government would continue the payment of funds for a number of years equal to the profits and depreciation allowances that the subsidized enterprises would have earned had the subsidies been continued. Its payments could also cover the interest and other such contractual obligations the firms may be obliged to pay as the result of having reasonably entered into such arrangements in connection with the production of the subsidized item. Severance allowances would also probably have to be given for a time to the employees of those enterprises, equal to their wages or to a major portion of them. In addition, it would probably be necessary to some extent to provide such payments to the firms producing equipment or other supplies for the subsidized enterprises, and to their employees. For example, as compensation for the elimination of farm subsidies, not only farmers and their employees would have to receive severance allowances, but also the farm equipment industry and its employees. The total of the severance allowances in any given year, however, would not exceed what the government presently spends in buying the products concerned. The payments at each stage of production would not apply to the sales revenues received at that stage, but only to the much smaller figure of the net income earned by the various parties, plus depreciation allowances.

In this way, I believe that the businesses that are presently recipients of government subsidies, together with their employees and suppliers, could be given a powerful short-run interest in the abolition of their subsidies. They could be placed in a position in which the severance allowances they received would make the transition to producing for the free market virtually painless, indeed, even positively rewarding insofar as those allowances plus immediate earnings in the free market exceeded the income previously derived from the government.

Escaping from Rent Control with the Support of Tenants

The rental housing market, having suffered in places such as New York City from two full generations of rent control, and with no end to rent controls in sight, has devised a method of escaping from the destructive effects of rent controls, and of doing so with the support of the tenants involved. The method rests on the recognition by landlords that in point of fact the tenants have acquired a kind of squatter’s rights to the apartments they occupy, “rights” which have acquired long-standing legal sanction that almost certainly will continue to be upheld by the government. Based on this recognition, the method of escape adopted by growing numbers of landlords is that of allowing the tenants to reap a substantial share of the financial gains resulting from an apartment house becoming converted to condominium or cooperative housing. This is the meaning of the fact that landlords offer their existing tenants substantially below-market “insider prices” on the purchase of the apartments they occupy, on condition that the tenants agree to the building’s change from that of rental housing to condominium or cooperative status. The tenants are then free to turn around and sell their units or rights to their units for a substantial gain, which, of course, is what wins their cooperation.

This is a very sad situation insofar as it represents the fact that to an important extent a group of nonowners has managed to acquire the status and rights of property owners by means of a government-sanctioned–indeed, government-led–violent appropriation. It is the closest the United States has thus far come to a situation comparable to that of a successful feudal invasion, in which an earlier group of property owners is forcibly dispossessed by a subsequent group of property owners. Nevertheless, it is better that property rights of the appropriators finally be recognized than that property should remain indefinitely in a condition in which no one has the power to use it well. Under rent control, tenants can stay on as long as they like, and consume the capital invested in the buildings in which they live. They are succeeded by other such tenants. The result is simply the destruction of the stock of housing, inasmuch as the rent controls deprive the landlords of the incentive and, indeed, the ability, to maintain their housing. Compared with this alternative, the conversion of rental housing to a different status, free of rent controls, at least makes possible the maintenance of the stock of housing and its possible increase.

Apart from once and for all abolishing existing rent controls–however unlikely the prospect may be in many places at present–the contribution that the government could make to the process of the market’s freeing itself from rent controls would be constitutionally to guarantee that once any property managed to escape from rent controls, it would never again, under any pretext, be subjected to them. This would eventually operate to reestablish an extensive market in rental housing. Such a market, of course, is vital for all those who cannot afford to buy their housing.

Copyright 1996 George Reisman. All rights reserved. The encyclopedic Capitalism: A Treatise on Economics is a required reference for every Capitalist’s library. Reisman’s treatise is now available in two volumes: Volume I (focuses on microeconomic issues) and Volume II (focuses on macroeconomic issues).

Articles in this Series

• Toward the Establishment of Laissez-Faire Capitalism (Part 1 of 10)
• Privatization of Property: Importance of Fighting on Basis of Principles (Part 2 of 10)
• The Freedom of Production and Trade Under Capitalism (Part 3 of 10)
• Capitalism and the Abolition of the Welfare State (Part 4 of 10)
• Abolition of Income and Inheritance Taxes Under Capitalism (Part 5 of 10)
• Establishment of Gold as Money (Part 6 of 10)
• A Pro-Capitalist Foreign Policy (Part 7 of 10)
• Separation of State from Education, Science, and Religion (Part 8 of 10)
• A General Campaign at the Local Level for Laissez-Faire Capitalism (Part 9 of 10)
• The Outlook for the Future of Capitalism (Part 10 of 10)

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GEORGE REISMAN

George Reisman, Ph.D., is Pepperdine University Professor Emeritus of Economics and the author of Capitalism: A Treatise on Economics. See his Amazon.com author’s page for additional titles by him. Visit his website capitalism.net and his blog atGeorgeReismansBlog.blogspot.com. Watch his YouTube videos and follow @GGReisman on Twitter.

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Over the years, I’ve discovered the distinguishing feature of leftists is not irrationality, ignorance or badness, although those qualities are often present. The distinguishing, most widespread feature of leftists is gullibility.

It makes sense.

It takes epic levels of gullibility to believe that you can entrust the least morally and intellectually capable members of society (politicians) with unwarranted power and earned money to reshape human beings not just into what they cannot be, but should never be.

Michael J. Hurd, Daily Dose of Reason