14 September 2021
How To Finance Social Programs
There are at least two ways to increase federal revenues for more expansive social programs: increase tax rates on the most successful businesses and individuals as in the current Democratic proposal or provide higher incentives for tax-paying companies and residents. The choice depends on whether you believe that economic activity is a zero-sum or a win-win game.
In a zero-sum scenario, the highest income-earning corporations and individuals will have made their gains primarily at the expense of the rest of the economy. Because those left behind have effectively paid to reward the successful players, it is deemed equitable to provide them with social programs they cannot afford by themselves as compensation, financed by taxing the successful players more highly.
The fallacy of this approach is that the higher tax rates constitute a disincentive on successful economic activity. Enlightened government policy would aim at increasing the number of individuals and businesses that are able to earn higher market rewards for their economic activity. In a win-win situation, economic growth benefits all participants in the game. Profit-sharing for employees, customers, contractors and contract principals should be encouraged with tax credits in order to broaden the number of beneficiaries in each transaction, and thereby spread the burden of financing social programs.
This model assumes that it will result in higher overall economic growth and make possible increased social progress. It does not start with lower tax rates, for it avoids punishing surtaxes on economic success by creating a direct linkage between pro-active profit-sharing and stable corporate tax liability. It will also be possible to offer an offset provision in the tax code allowing high individual income earners to reduce their tax liability over a statutory minimum with contributions to approved non-governmental social programs as well as charities.
