Most Americans are in the 15 percent tax bracket and pay 3 to 4 cents per dollar in State tax. On top of that American’s pay 7.65 percent in social security and medicare taxes. Thus, even the modest-income people are in an overall marginal tax bracket ranging from 26 to 33 percent tax. High income people in states with income taxes are in a overall marginal tax bracket of 50 percent. High tax rates cause deadweight losses in two ways: 1. loses by spending tax revenue wastefully. “When government spends money on things, there’s a strong basis for believing that those things are worth less than the items we would have bought with our money.” “Governments have little or no incentive to spend money carefully because it’s not their money.” 2. Every tax causes people to alter their behavior in some way. These distortions in behavior designed to reduce the amount of taxes they pay. The deadweight loss from a tax is proportional to the square of the tax rate. The main thing we need to do is cut taxes drastically, especially at the federal level. The flat tax will create two taxes, one for income and the other for sales. Proponents of big government oppose tax cuts. “The reason they give is that such tax cuts generate disproportionate higher benefits for high-income people than for low-income people. The top 5 percent made 32.5 of the income. Low and middle income people would gain from tax cuts. Higher-income people would work harder because they could keep more of their earnings and lower marginal taxes would give people an incentive to save. The more capital and high-skilled workers there are for low-skill workers, the more productive and higher paid the workers become. EITC has incentive problems and may encourage pushes for bigger government and EITC incentives exist causing low income people to elect not to earn additional disqualifying dollars. The death tax is unjust. The death tax is unfair because it levy on people wh have already paid tax on what they have accumulated. The capital gains tax is unjust. “The tax on capital gains is another particular unjust tax because is does not take account of the increase in asset prices that is caused by inflation.” The capital gain tax does not allow individuals to index their prices so that they are paying capital gains taxes on real capital gains and not on phantom capital gains.

Roughly 80 percent of payroll taxes collected from current workers today are sent out to current retirees The Social Security Administration claims they will be solvent until 2037 meaning “the last of the special federal government bonds that the SSA has bought and kept in the Social Security Trust fund will be sold off to the US Treasury.” This sale is between the left and right hands of government. 2024, the cost of benefits will exceed income from payroll taxes. In 1987, Michael Boskin presented data on the rate of return earned by the social security tax and calculated it to be minus 0.79 to 6.34 percent dependant of the peron’s age, income level, and martial status. A person born in 1915, the sole wage earner for a married couple earned 6.34 percent. Every other category of income earner earned a lower return percentage. At the same time index portfolio of stocks earned about 7.7 percent adjusted for inflation. 4 percent is a good pessimistic real rate of growth. 4 percent represent a portfolio of stocks for the worst 30 year period for stocks. A person working from the period 1929 to 1994, would have been $120,00 better off with a private savings plan instead of social security. A minimum wage earning for his whole life would have still been $9,000 better off without social security. Social security cost the maximum wage earners $262,000 in lost wealth and cost the average wage earner to lose $160,000. Absent social security people would save for their retirement. In 1991, the median financial assets of households with heads aged 55 to 64 were only $8,300. Social security is one of the main reasons people don’t save. Steps to save social security without increased taxes are to 1. increase the retirement age 2. change the benefits formula 3. change the index of benefits. The author proposes, “I would allow anyone who is at least 45 years old and who ahs paid social security taxes for at least 10 years to immediately leave the social security system. A person who left would never be allow back in and would give up all claim to past taxes paid and future benefits.” 70 percent of generation X does not believe they will receive social security benefits. Bad proposals include : tax rate increase, government investment in stocks, and affluence tests that reduce claims on benefits.

Heilbroner pointed to the Soviet Union, China, and Eastern Europe as giving “the clearest possible proof that capitalism organizes the material affairs of humankind more satisfactorily than socialism.” In the Soviet union, no one person or company could own private property, so there was no incentive to take care of the grain, so much of it rotten each year. Soviet factories were judged by quotas rather than their ability to satisfy customers. The soviet government set prices that were too high causing huge surpluses and the surpluses sometimes ended up in landfills. Likewise, much of the soviet oil production ended up costing, instead of profiting the people, the chaos of economic life under socialism. “Alchian pointed out that a huge amount of human behavior could be understood if you got straight what the property rights were.” Property rights give incentives to the individual to earn a profit, produce, and satisfy the customer through generosity-courteous-thoughtful behavior. The price would be determined by what people were willing to pay for the product or service. “When something is allocated to the highest bidder, the bidders, no the auctioneer, determine who gets it.” “When government hands things out or underprices them, politically well-connected people inside and outside government will take advantage of this and capture much of the value that would have otherwise been capture by property owners.”

Some facts: Things are getting cheaper and better. Poverty is temporary. Americans are getting wealthier. American’s live better than any king in the past. “Whatever your criterion of culture, the odds are extremely high that, with capitalism-that is with free markets- you will get more of the kind of culture you want than you will get when government rules the economy with a heavy hand. There is no greedy hand, only social, political, and financial incentives and when incentives are artificial high the system revolts, as in the case of Nixon’s oil price fixing and Carters conservational efforts. Capitalism delivers the goods both abundantly and with quality. Artists and actors thrived becauses their works were popular in a freemarket. There is a labour shortage. Freemarkets are creating infinite resources. There are no shortages of resources. Welfare impoverishes individuals. Government operates on principles of force.