Friday, February 29, 2008
Increasing inequalities in income and wealth undermine the capitalist promise of universal prosperity and political liberty. To explore that growing tension, this article examines the key role of taxation in the original vision and extensive writings of Adam Smith -- the father of capitalism. Comparing that vision to the current United States tax system reveals many important inconsistencies, particularly the current penchant for simultaneously taxing wages and exempting (or delaying) taxes on wealth and wealth appreciation. The article proposes several ways in which the U.S. tax system could more closely align with Smith’s capitalist vision. These ways of more closely adhering to a capitalist ideal include exempting a portion of wages (equal to the earnings of almost half of the United States population) from all forms of taxation and introducing a wealth tax on amounts greater than needed for working people to enter the housing market.