Newly elected Congresswoman Alexandria Ocasio-Cortez wants a number of laws changed that will ultimately redistribute income away from people who earned it and toward people who haven’t earned it. She says it is simply unfair that some people have so much and others have so little.
Ocasio-Cortez is a member of the Democratic Socialists of America (DSA), whose ancestor was the Socialist Party of America.
The DSA has some very specific goals. They want to end private ownership of a number of industries, especially those industries whose products are viewed as “necessities.” In addition, the DSA wants to “democratize” private businesses in order to force owners to give workers control of the business.
Ocasio-Cortez has suggested that the highest marginal tax rate should be increased from the current 37% to 70%. She says that the government can use those extra tax dollars to pay for healthcare and higher education for all Americans.
Most Americans do not approve of these actions. History shows why. The U.S. went from birth in 1776 to being the most prosperous, most powerful and most advanced country in the world in about 150 years. This was accomplished because our capitalistic system encouraged individual freedom and individual responsibility. It is a system that rewards people who make contributions and does not reward people who do not contribute.
The U.S. has generally had low taxes. That changed somewhat in the 20thcentury when the U.S. imposed a number of new permanent taxes including the federal income tax, the social security tax, and the Medicare tax. Individual states added their own income tax, property taxes, sales taxes, and special taxes on things like gasoline and alcohol. Still, the U.S. income earner is taxed less that income earners in most other countries.
Implementing socialistic policies would result in a slow growth economy which would reduce the standard of living for all Americans. Most countries that have implemented socialism, like Cuba and Venezuela, have very poor living conditions.
Leftists cite countries like Sweden and Norway as “socialist,” but delude themselves that a generous welfare state supported by a vibrant, globally competitive economy (Sweden) or petrostate wealth (Norway) is an example of socialism working well. In fact, Sweden has been cutting taxes and welfare spending so much that the total share of the economy taken in taxation declined by 5 percentage points between years 2000 and 2017 according to OECD figures and complaints of welfare cuts are old hat. Further reform and “sweeping” tax cuts are being proposed by the new coalition government.
In those Scandinavian countries, there is a sharing culture where democratic socialism seems to fit. It is also interesting to note that these countries are hundreds of years older than the U.S. Their population base is relatively small with the total number of people equaling about 27 million. The U.S. has about 330 million people.
Despite socialism going against everything that made America great, there are a surprising number of young people who support Ocasio-Cortez, the DSA, and the concept of socialism. These millennials want the government to raise taxes on those that contribute the most and use the funds to pay for their healthcare, their higher education, and an expanded welfare program.
Although there were periods in U.S. history where the socialist movement gained some steam, never have we seen so many young people supporting socialism over capitalism. Most Americans would agree that socialism would be a complete disaster for the U.S.
The high taxes on marginal income would eliminate the incentive to invest for high-income earners and reduce capital formation. In our capital-intensive economy, this would slow economic growth. “Free” healthcare and “free” higher education in addition to a higher minimum wage, increased access to food stamps and welfare and universal basic income would destroy the incentive for lower-skilled workers to seek employment and improve their skills. This too would slow economic growth.
In fact, the way to reverse this trend and move these “lost souls” from support of socialism to support of capitalism is to do exactly what President Trump is doing. That is, bring back economic prosperity. Once these people experience true economic prosperity, socialism will lose its appeal.
Socialism has its appeal today because the U.S. economy has been mired in slow growth for nearly two decades. Annual economic growth hasn’t exceeded 4% since 2000. Growth of 4% or more would provide an opportunity for all qualified Americans. There would be far less underemployment, and there would be higher wages with more opportunity.
This long period of economic stagnation has resulted in the problems we see today that make socialism seem favorable. The slow growth of the past two decades did provide opportunity for those at the top. But those at the lower income levels saw little or no opportunity. As a result, they saw no increase in income. To someone with nothing, Socialism is appealing.
President Trump quickly moved away from socialistic behavior when he removed burdensome and counterproductive government regulations that were designed to protect consumers, but really just added to the cost to business and slowed growth. Then Trump lowered taxes for all Americans, including the highest income earners and corporations. Since then the economy has grown at more than a 3% annual rate.
President Trump is restoring freedom to the economic system. He is trying to bring true prosperity back to the U.S. If he is successful — and that will be difficult because every Democrat, the mainstream media, and even some members of his own party oppose him — Socialism will lose its appeal. For the sake of the future of our country, let’s hope he is successful.
Michael Busler, Ph.D. is a public policy analyst and a Professor of Finance at Stockton University in Galloway, New Jersey, where he teaches undergraduate and graduate courses in Finance and Economics. He has written Op-ed columns in major newspapers for more than 40years. @mbusler www.facebook.com/fundingdemocracy