December 8, 2011

RICHARD EPSTEIN: Why Progressive Policies Always Fail.

We have rigged our tax policies so that, depending on the year, close to 40 percent of the income tax revenue comes from the 1 percent of the population that controls 20 percent of the wealth.

Close to half the population pays no federal income tax at all. This is a political disaster in the making.

The American economy is currently stagnating for two main reasons. At the top of the system, a relentless program of redistributive taxation undermines incentives for long-term investment and growth.

Yet from this vain pursuit of economic equality, we get declining standards of living for all. Simultaneously on the ground, excessive regulation of labor and real estate markets chokes off growth — employer by employer and house by house.

Our lopsided structure cannot last. Stock market losses cut the total income of so-called “one percenters” by around 30 percent between 2007 and 2009, with the greatest losses in the top 0.1 percent.

Higher tax rates will drive that overall level of wealth lower still, given that so little government revenue comes from the bottom half of the income distribution. Low tax revenues plus shiny new entitlements create an unsustainable situation where 40 percent of current expenditures are funded by long term debt, on which principal and interest payments will soon come due.

Something that can’t go on forever, won’t.

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