Modern Political Populism

A public debate that has been set off by the third Presidential debate over the last few days is that of redistribution versus just reward for hard work.  This is an issue that touches the heart of America’s identity.  The Democrats plan to increase the tax burden for anyone earning over $250,000.  This naturally draws a great deal of popular support in that only perhaps less than 5% of the American actually make such an amount.

But there are two complications to such an obvious, and populist vote winner.  The first is factual and the second is aspirational.  The fact that the top quartile of all American tax payers contributes approximately 70% of all tax receipts and the top 5% of American tax payers 35% shows how important these people are to the collection of taxes in the first place.  Increased taxation will make this category not only less rich but also less productive.  This has a real impact on the economy as well as shrinking private activity in the economy to public activity in the work place.  McCain (perhaps too late) has therefore pounced on these measures as being fundamentally ‘un-American.’ 

Aspirationally, Americans are taught that they can reach the sky and conquer the world.  Increasing taxes on the richest dents that ambition because it creates more of an equivalence between doing something and not.  Though this might seem absurd to many who see the poverty and the helplessness of huge sections of the populations – raising taxes on the rich is doing nothing to increase the absolute material position of these people.  Raising taxes on the highest earners is a relative measure whose immediate effect is to increase the size of the government vis-à-vis everyone.