Capitalism and the Tax System: A Search for Social Justice

Abstract

America is a country founded on ideas. The Enlightenment presented one set of ideas that attended our birth, and one Enlightenment belief that is as strong today as during the revolution is our faith in capitalism and the protection of private property. Yet the United States tax system manages to violate fundamental capitalist principles, as outlined in the extensive writings of Adam Smith-the father of capitalism. Comparing Smith's vision to the current United States tax system reveals many important inconsistencies, particularly the current penchant for simultaneously taxing wages while exempting (or delaying) taxes on wealth and wealth appreciation. This Article proposes bringing the U.S. tax system more closely in line with Smith's capitalist vision by introducing a combined wealth and consumption tax, each with significant exemption amounts. The expected result of a combined wealth and consumption tax system is the release of a considerable portion of the population from tax liability. Less expected rewards of a tax system that more closely resembles Smith's capitalist ideal include: (a) support for a "Living Wage"; (b) class-based affirmative action; and (c) reparations for slavery. "The middling and superior ranks of people, if they understood their own interest, ought always to oppose all taxes upon the necessaries of life, as well as all direct taxes upon the wages of labour" Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations.