In reply to my comments in support of tax cuts and, in particular, a flat tax—which I posted under the New Jersey Star-Ledger editorial Trump, Cruz and Rubio tax plans are indecent proposals—correspondent shape countered, saying that a flat tax is “a giveaway to the wealthy and would create even more income inequality.” On income inequality, I replied:
Income and wealth are earned by creating a value for others, through trade. A lot of income and wealth is earned by creating a lot of value for a lot of people. I use a Dell computer with Microsoft Windows, thus contributing to the fortunes of Michael Dell and Bill Gates. Win-win. Why should their income be treated any differently than mine or anyone else’s? They make more than most because they create more value than most. They should be taxed at the same rate as me.
Economic inequality—the kind that is earned through market trade rather than gotten by political favoritism—is a sign of justice. It is a sign of the fact that people are free to rise as far as their ability, ambition, personal circumstances, and vision will carry them, as determined by the buyers of their products and services. The anti-inequality crusaders are really anti-justice crusaders.
The notion that a flat tax is “a giveaway to the wealthy” is easily refuted. All you have to do is use words properly.
First, a flat tax probably wouldn’t result in a tax cut for all wealthy people, thanks to all of the tax preferences that would be eliminated. But let’s assume a wealthy person whose taxes would be cut. Is it a giveaway? Obviously not. A “giveaway” to somebody means giving something to that person that wasn’t originally his. But a tax cut allows a taxpayer to keep more of what he has earned. He is not being given anything that he didn’t originally own; unless, of course, one assumes that all income is automatically the property of the government, in which case every dollar of our take-home pay is a gift from the government. That, of course, is a thoroughly statist premise and another way of saying we are all slaves living at the pleasure of the political rulers. But the premise that the state has first claim on all income is empirically untrue. The government obviously can’t tax anything that hasn’t first been earned by somebody.
Good Profit—Charles G. Koch