It’s ironic that our progressive tax system has made it nearly impossible for those in the lower tax brackets to compete successfully with the rich.
Capitalism and success no longer seem to be ideals or symbols of our values; in fact, you could say they are largely disdained. In fact, a recent Rasmussen poll found that 52% of Democrats responding view socialism favorably today. Sadly, to me at least, capitalism and success are regarded by many today as representative of greed, with the capitalistic system creating monumental imbalances in power that enrich some at the expense of others.
In some ways, this might be accurate, and I think the beef industry even bears this out. For instance, it would be tough to find an economist today who believes that the profits of ranching can cover the cost of ranchland. One must already be successful, or have acquired land or capital in some way, to make a viable investment in ranching. For those with access to such capital, the ranchland investment can be quite viable.
It’s ironic that our progressive tax system has made it nearly impossible for those in the lower tax brackets to compete successfully with the rich. While this seems counterintuitive, let’s examine it in a real-world scenario. Working for a wage or salary is a great thing, but statistics show it’s a poor way to grow financially independent. Financial independence is largely correlated to owning resources, businesses, investments or capital.
Let’s say some property next to you comes up for sale and you’re either new to the business, or you aren’t yet producing much profit. Buying that adjacent piece of land would allow you to expand your operation, but since you have no tax incentive to own the land, or purchase it at a much lower tax rate than your very successful neighbor, every $1 you spend likely ends up costing you $1, plus interest.
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Meanwhile, your already successful neighbor might get that land for 70¢ for every $1 he spends, thanks to the inherent tax advantages that come with his wealth. The bottom line is that you might not be able to afford the property, while your rich neighbor cannot only buy it, but becomes richer by doing it.
When is the last time you heard billionaires Bill Gates or Warren Buffett complain about a progressive tax code? You haven’t because it builds their wealth. Relative to their salaries or profit levels, they typically pay more in taxes than those with less wealth, but their balance sheets are growing at a much faster rate than those in the lower brackets. That, ultimately, is what they’re focused on.
The grand illusion created by a progressive tax system is that it somehow levels the playing field, but the disparity between the middle class and rich continues to grow.
The NFL model as a microcosm
Meanwhile, despite growing prosperity, the trend toward socialism continues to grow across the globe. Perhaps it’s inevitable; after all, any system that rewards a minority of its constituents disproportionately well is destined to create discontent (economies of scale and access to capital are real advantages). One of the few places you don’t see this happen is professional football.
First, let’s take a look at professional baseball, which is a great analogy to our current system. Meanwhile, the National Football League (NFL) is an example of the system baseball wants to move toward.
Under both systems, the rules on the field of play are the same for everyone. Yet, in professional baseball, there are inherent advantages for some teams that influence the outcome of events. Even though these sports represent pure competition, the results are skewed in favor of some teams over others.
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In professional baseball, it’s always exciting to see a small-market team like Milwaukee, Minnesota or the Colorado Rockies compete in the World Series, but the odds favor teams like the Yankees and the Red Sox. The pockets of the latter two are just so much deeper, allowing them to afford a higher level of proven player and coaching talent.
Now let’s compare that to pro football, which combines parity and competition. Yes, there are teams like the Pittsburgh Steelers and New England Patriots that seem to be perennial contenders, but most people figure that the smaller market teams eventually will get their shot at the Super Bowl. After all, revenue sharing, the annual draft and the salary cap help to keep the playing field equal.
You might say that this is the capitalism that most people aspire to – the awarding of excellence with equal opportunity. Yet, the NFL ultimately violates the most basic premise of fairness by, in essence, punishing teams for success.
The fallacy of the NFL system and the European socialist model is that, while it’s possible for all to prosper and compete, the game has to be rigged. The money, the talent, even success, is taken from the most successful and distributed to those who are not competitive. But the NFL model only works if membership in the club is strictly limited and controlled, and only if every team is bound by the exact same rules.
American attitudes are changing
Capitalism and its focus on free markets and individual efforts to make money, and the financial structures that were created to allow such a system, are viewed by many today as symbols of selfishness and greed. Capitalism is blamed for the degradation of the environment, the abuse of workers, world hunger, and even social injustice.
Today, countries with a higher standard of living are looked upon less favorably; the thinking goes that they must have prospered at the expense of others. The world’s economy and wealth is seen as a zero sum game, and the success of one comes at the expense of others. The call is for a new era and a shifting of power from the marketplace to an authority with higher moral leanings than what is reflected in the pursuit of a positive bottom line. Thus, rules and controls are needed to constrain the resourcefulness (also called greed) of men.
The London-based think tank, Legatum Institute, recently reported that while prosperity has increased around the globe during the past four years, it has remained stagnant in the U.S. In fact, the institute ranked the U.S. as 12th out of 142 countries in its 2012 Prosperity Index. It marks the first time the U.S. has ever been ranked outside the top 10.
The Legatum Institute attributes that slippage by the U.S. to a decline in entrepreneurship and economic opportunity, saying that the fall in prosperity “. . .is driven by a decline in the number of U.S. citizens who believe that hard work will get them ahead.” See the brochure.
That represents quite a change from traditional American attitudes. And people are apparently noticing.