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Taxing treadmill

Books | State tax survey provides good data, bad conclusions

Issue: "Save our cities," April 19, 2008

If you're reading this just after filing your federal income tax return, you may be in no mood to delve further into governmental appetites. Nevertheless, Susan Pace Hamill has performed a service by publishing As Certain as Death: A Fifty-State Survey of State and Local Tax Laws (Carolina Academic Press, 2007). The volume's state-by-state approach presents lots of facts in an easy-to-digest way, but some of its conclusions look better in theory than they play out in reality.

In particular, Hamill argues that sales taxes are bad because rich people (who save more) pay a lower percentage of their income in sales taxes than do the poor, who keep afloat by spending anything they earn. And yet, when the affluent invest and save, that helps everyone-our low national rate of saving is one reason why the dollar has fallen in value so much in relation to foreign currencies. Hamill also assumes that the way to improve poor urban schools is to spend more money on them-but compare the record of inner-city public schools with the Christian variety that typically cost much less.

I've seen over the years that things are not always as they appear, and tax rates labeled as "regressive" may help the poor more than those called "progressive"-the key issue is whether tax rates stimulate hard work and entrepreneurial activity or stifle those roads to progress for all. But this insight is nothing new. Adam Smith in 1776 showed that the striving of individuals for profit produces the wealth of nations. James Madison in 1788 argued that the self-seeking of political factions prevents dictatorship. More recently, Rodney Stark has shown that competition among churches and denominations maximizes evangelism. In each case, being nice has brought less progress than competing hard.

Three mighty men

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History is a great teacher for those with eyes to see and a brain that takes into account human nature. Mark Skousen's The Big Three in Economics: Adam Smith, Karl Marx, and John Maynard Keynes (M.E. Sharpe, 2007) is a great way for non-academics to learn the origin and nature of some ideas that shape our lives (and tax bills) today.

Skousen praises Smith's 18th-century fight to make economic freedom one of "the most sacred rights of mankind." Smith's insight that "the wealth of a state consists in the cheapness of provisions" is a lesson that today's neo-mercantilist anti-globalizers need to learn. Skousen mourns the betrayal of classical liberalism by Ricardo and Mill, whose vain preoccupation with distribution made class antagonism seem more important than Smith's market harmony. They turned economics from a field of optimism into the "dismal science."

Understanding went downhill for about a century. The labor theory of value-the idea that value is determined not by markets but by the amount of time that a person puts into a product-gave Marx a powerful tool, and Keynes then made the case for the government's hand to replace the invisible hand. In the mid-20th century, though, Hayek and Friedman further developed free-market theory just as the miserable failure of planned economies-and the amazing success of free-market environments such as we find in Hong Kong-restored the optimistic sense that freedom and prosperity can go together.

But Skousen offers a warning: "Unless market economists are vigilant, natural liberty and universal prosperity will be on the defensive again." - by Alex Tokarev

Three policy perspectives

This month brings the 25th anniversary of the publication of Herbert Schlossberg's Idols for Destruction, a profound analysis from a Reformed perspective of our society's self-destructive tendencies. The Crossway edition of it is still in print. Ron Sider eloquently applies his Anabaptist heritage to policy issues in The Scandal of Evangelical Politics (Baker). Crossway has just published a 15th-anniversary edition of a book of mine, The Tragedy of American Compassion, that apparently contributed to welfare reform and the creation of faith-based initiatives.

Marvin Olasky
Marvin Olasky

Marvin is editor in chief of WORLD News Group and the author of more than 20 books, including The Tragedy of American Compassion. Follow Marvin on Twitter @MarvinOlasky.

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