A Penalty Tax on Progress; H. Hazlitt

A few years ago, for example, Harley L. Lutz of Prince ton, arguing for a proportional income tax, contended that there was no logical stopping place to the progres[99 ] sive principle, based on the current specious form of the "ability to pay" theory, short of "complete equalization of incomes by confiscation of all incomes in excess of the lowest amount received by anyone." And more recently two University of Chicago lawyers, Walter J. Blum and Harry Kalven, Jr. (in The Uneasy Case for Progressive Taxation, University of Chicago Press), and the econo mist F. A. Hayek, have subjected the progressive-income tax principle to searching criticism. Major Objections Let's try to set down some of the main objections: I-It is a dubious moral principle, an abuse of democ racy, and an invasion of minority rights for a majority to impose on a minority a higher tax rate than it accepts for itself.

2-The legal requirement of time-and-a-half wage rates for overtime is based on the assumption that progressive incentives are necessary to get people to work longer and that progressive rewards are justified as the workload increases. But the present income tax is based on pre cisely the opposite principle of decreasing rewards for increasing work. Take, for hypothetical illustration, a top-level surgeon who averages $500 an operation and might take on 240 paid operations a year. This would bring his income before taxes to $120,000. For his first operation in January he would get and keep $500. Going into February he would only be earning net (after in come tax) $310 per operation. Along about June he [100 ] would be getting (net) only $140 an operation. And when he got into November he would be turning over $445 of every $500 fee to the government and getting only $55 for himself. Under the present income tax the same principle applies, if less dramatically, to the in comes of all of us. The more hours we work, the less we get paid per hour.

S-Under this system people are increasingly penalized as they become more productive. Inevitably this tends to kill incentives to production and reduces the total na tional income and living standards. 4-The progressive income tax skims off precisely the funds most likely to go into new investment-into build ing the new tools and equipment that increase the pro ductivity of the country and lift the living standards of the workers. It slows down the rate of economic progress. 5-And lastly, these confiscatory rates do not even raise revenue. They destroy the sources of revenue. The great illusion of the present age is that through these con fiscatory rates we have been able to throw the burden of huge government spending on the very rich. But analysis shows that only 8 per cent of the personal in come tax is paid by those making more than $100,000 a year, and only 16 per cent is paid by those making more than $50,000 a year. Looking at the matter from the other end, 74 per cent of the income tax is paid by people earning less than $25,000 a year, and 59 per cent of it is paid by people earning less than $10,000 a year.

[101 ] HOW TO GET ACTION "I WANT less talk and more action." Thus speak Americans when they suddenly awaken to the fact that their liberties are endangered. Talk, they say, is useless; only action counts. But perhaps talk and action aren't necessarily opposites. What if studying, talking, writing, and explaining should turn out to be the· only worth-while action there is? What then? There are only two types of action: physical and intel lectual. Do those who would save liberty advocate physical action? If so, how? To use physical force against others, except defensively, is to destroy the liberty of others which, by definition, is not liberty. To adopt this tactic-to employ physical force against others in any form or degree, except in self-defense-would be merely to substitute a new form of compulsion for the existing forms of compulsion, trading violence for violence-revo lution! At best, it is the court of last resort and is not, really, what most persons have in mind when they insist they want action. Most of them mean only that they want "something done," and quickly! They want to :fight peacefully. The thought of using :fists or guns never as much as enters their heads; they reject physical action, [102 ] in their calculations, by not even contemplating it. Thus, according to their own thesis, nothing logically remains but intellectual action.