I’m sure I’m going to piss almost everyone in my friends list off about this in one way or another. ;)

The other day I was over at my brother’s house and the subject turned to taxation systems. He stated that he had started switching to the idea that a progressive tax was better due to the growing wealth gap in the country. I replied with one of my old ideas, the deadly sins that capitalist systems make that cause them to be less efficient. Progressive tax are not bad in themselves, but you have to follow two rules. One is, make sure you cap the percentage off at a reasonable level. Anything above 50% for the highest tax rate is unreasonable. 50% is likely unreasonable as well.

The second is, don’t do the first deadly sin. That is, do not create a system in which by working one hour more, or working a little bit harder, and earning one additional dollar, that you end up with less net income.

Our current tax system violates the second one by doing “Tax Brackets.”

This kind of thing basically encourages people to be slugs by making it so that working less gives them more money.

What I didn’t connect at the time was that the very thing that most socialists (Progressives) use that money for, a Welfare system, also commits this deadly sin that capitalist systems can make. This one is even more directly related to his stated problem with flat tax systems. Welfare encourages laziness to an extent that is unmatched by the tax bracket system, and in the exact level of society to cause the problem described. If there is someone on welfare who gets X per month, who then goes out and gets a minimum wage part time job earning X-Y per month, they could easily lose their first X per month. This leaves them earning Y less than they were before. Again, like progressive taxes, Welfare itself isn’t causing the people to be slugs, it’s the improper and incompetent implementation of welfare that is causing people to be slugs. It’s just human nature. It raises the work threshold required to make more money to an extent that many people won’t bother.

There are more deadly sins of capitalist systems too. One of them also clearly contributes to this problem in this country. That is artificially raising the barrier to entry into business. Between the corporation laws, the requirement of licensing to breathe, and the environmental and health laws… The barriers to entry into business are insane. After a certain point bootstrapping a business up from the ground becomes impossible due to all of the regulations. This essentially destroys one of the strongest engines of capitalism. It helps keep the poor poor by making it impossible for them to do anything but work for a company. It very drastically hurts competition in the marketplace both in the sales of the products themselves, and the competition for employees by limiting their choices. In addition, this is what also drives megacorporations to become larger, squeezing out smaller companies and restricting choice even more. If every business building X widget has to fill out Y thousand forms to the government, it becomes more efficient for a megacorp to have 1/10000th of their workforce filling out those forms than it is for the smaller companies to have 1/100th of their workforce filling out the same forms.