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Tax Day: Penalizing Producers

Tax Day: Penalizing Producers

5 Mins
April 17, 2012

Productive individuals find themselves more and more under assault by governments seeking to expropriate their wealth. This is the logical consequence of our mixed economy, which is part free-market capitalist and part welfare state with government command and controls. Tax day is a good time to take stock of how and why government is emptying the pockets of producers.


A century ago total annual government spending at the federal, state, and local levels was only about 7 percent of GDP. Today it is over 40 percent, with the federal share currently the largest component. Back a century ago total government debt was small as well; today federal debt is equal to GDP.

We’ve seen this spending explosion because federal revenues are no longer used simply to cover the legitimate, limited government functions enumerated in the Constitution.

Over the past century statists have expanded the scope of government bit by bit. They have argued that the clause in the Constitution giving Congress the power to do what is “necessary and proper” to carry out its legitimate functions is a license to do whatever it wants, without limit. Similarly, the clause that gives Congress the authority to regulate commerce among the states was originally meant to allow it to eliminate trade barriers between states. But the interstate commerce clause, too, has been used as an open-ended power grant to actually restrict commerce and to support certain industries or enterprises at the expense of others.

Which federal departments perform functions not enumerated in the Constitution, or that are better left to states, or that are none of the government’s business at whatever level and should be left to private enterprises, associations, or charities?

  • Agriculture, which pays farmers not to grow crops and keeps many commodity prices well above market prices;
  • Commerce, which gives corporate welfare to businesses;
  • Education, which was a sop to the teachers’ unions and which restricts the control parents have over their children’s education;
  • Energy, which subsidizes some production but prohibits much more;
  • Health and Human Services, which is the home of Obamacare;
  • Housing and Urban Development, which has been ruining inner cities for decades;
  • Interior, owner of lands that should be mostly private;
  • Labor, which gives special favors to unions;
  • Transportation, which foists costly mass transit systems on urban areas and, in the end, usually makes traffic worse.

And this list doesn’t include all of the bloated executive agencies!


Of course, nearly 45 percent of federal spending is entitlements—Social Security, Medicare, and Medicaid. These ever-expanding programs account for much of the out-of-control part of the federal budget.

Entitlements? What this means is that someone other than you is entitled to your wealth and that you’re entitled to the wealth of your neighbors. Sure, they say that these systems are self-funding, that the government taxes money out of your paycheck that it will keep in trust for you and use later to cover the cost of your medical bills and your retirement. But this is just a cover story.

The truth is that today what you get back when you retire is perhaps one-third of what you’d have earned if the money the government took from you went into a conservative stock portfolio during your working life. Invested money creates wealth. Redistributed money creates takers and dependents. In fact, the Social Security system is a Ponzi scheme. Congress makes commitments decades into the future for which there’s no way of paying. Then Congress is forced to extract more assets from the shrinking wealth of producers to cover those costs.


And what of those tax loopholes that businesses are said to abuse in order to make “excessive” profits? To begin with, corporate or business profits are the difference between expenditures—for rent, equipment, supplies, wages, etc.—and revenues from sales and investments. Often what is called a “loophole” is simply a deduction for some valid business expense, such as drilling equipment for an oil company.

But it is true that in many cases crony capitalists—the takers—seek special breaks that their competitors don’t get. The tax code is filed with a plethora of special breaks to promote enterprises or products, such as the tax breaks for individuals who purchase electric cars like the Chevy Volt.

Because political power rather than production for free exchange determines who gets what, honest individuals and enterprises must seek special favors and protection to keep themselves from being skinned alive by the feds.

And while we’re on the subject of taxing business, remember that America now has the highest corporate tax rate in the industrialized world. And business profits currently are taxed twice, as corporate or business profits and then again as personal income when distributed to owners. The right corporate tax rate should be zero, zip, nada!


Finally, let’s recall that the current tax system is, by design, structured to penalize producers so that paternalist politicians can hand out freebees to constituents. The more wealth you produce, the larger percentage of your wealth the government will take. Called “Progressive taxation,” it is a manifestation of the morality of a street thug targeting those who seem prosperous.

President Obama, the political street organizer, has taken this morality of envy and extortion into his administration and the halls of Congress. The cornerstone of his reelection campaign is: I’ll rob more and pass the loot to you in exchange for your vote. Just listen to his rhetoric as he seeks special taxes on “the rich.”

So on Tax Day 2012, let’s remember that politics in America today is a war between producers and expropriators, between true capitalists and crony capitalists, between responsible, independent individuals and infantile, servile ones. And the future of everyone depends on a victory of the former over the latter.


America’s April 15th Civil War , Edward Hudgins,  April 15, 2008.

 On Tax Day, Pretend Like It’s Your Money and Get Mad , Edward Hudgins, April 16, 2006.

 April 15: A Day of Moral Shame , Edward Hudgins, April 14, 2004.

Edward Hudgins


Edward Hudgins

Edward Hudgins is research director at the Heartland Institute and former director of advocacy and senior scholar at The Atlas Society.

Edward Hudgins
About the author:
Edward Hudgins

Edward Hudgins, former Director of Advocacy and Senior Scholar at The Atlas Society, is now President of the Human Achievement Alliance and can be reached at ehudgins@humanachievementalliance.org.

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