Today’s left-wing Democrats are yesterday’s Marxists.
Judged by their policy proposals, Vice President Kamala Harris and the left wing of the Democratic Party plainly do not believe in capitalism. They do not believe in striving. They do not believe that society should be meritocratic. As with the Marxists of the last century, they believe in equality regardless of the reality that all human beings are unique.
Some humans are geniuses but most are not. Some are great athletes, but most are not. Regardless of mental, physical, or artistic talent, however, the Left argues that we should all be equal. They swear fealty to that old Marxist principle: from each according to his or her ability, to each according to his or her need.
Contrary to the media’s defensive campaign in her support, Harris is a partner to this far-left ideology. Harris was one of the most liberal members of the Senate. As a candidate for president in 2019-2020, Harris surrounded herself with liberals who espoused far-left economic policies. She has done the same since becoming the Democratic presidential nominee this year.
Curiously, her economic advisers are not economists. Rather, they are lawyers who predominantly graduated from Yale Law School. But the top-line takeaway is that Harris and her advisers do not believe in capitalism. They believe in economic statism, bordering on socialism. They do not believe that the free market should set prices based on supply and demand. Harris believes the government should set prices for groceries, pharmaceuticals, and housing.
The vice president believes the federal government should steer the country’s largest banks toward capital-destroying investments, not profit-maximizing investments that are necessary for a growing, vibrant economy. Harris wants the government to control capital allocation. She wants price controls for groceries and housing. She has reiterated her support for drug price controls without understanding that controlling drug prices reduces innovation and, in time, increases preventable deaths.
She has reaffirmed her support for Biden’s tax policies. Harris wants a clearly unconstitutional tax on wealth that targets unrealized gains. She also wants to raise the corporate tax rate, the most economically damaging form of taxation. The data show that high corporate taxes slow economic growth. And Harris espouses individual tax policies that would reduce incentives to work.
She proposes a $6,000 refundable tax credit for children up to the age of one year. A single unemployed mother already on welfare would receive $6,000 for each new child. Work would not be a requirement. And Harris wants to restore the COVID-19 $3,600 child tax credit. These programs would cost the Department of Treasury $1.6 trillion. Harris clearly believes in a universal basic income even though very recent economic research concludes that a universal basic income does not lead to positive change. In fact, recipients of free money work less and remain trapped in cycles of debt and poverty.
Equally important is that Harris proposes to increase taxes to confiscatory levels on the most productive members of society. These high marginal tax rates would discourage hard work and the innovation necessary for a growing, dynamic society.
What is so bizarre about Harris’s plans is that her policies would slow economic growth and leave the country poorer. Harris ignores the economic truth that a rising economy lifts the economic fortunes of all households. The true poverty rate in the United States is 3% or less.
But let’s investigate Harris’s proposals a little deeper.
Harris says high grocery prices are a consequence of corporate greed. That is not true. Economists at the Federal Reserve Bank of New York just concluded that high grocery prices are caused by supply shortages and higher wages for grocery workers. Harris supports minimum wages and higher wages for low-income workers. And she got what she wanted. Wages are higher, and supermarkets pass those higher wages on to consumers.
Similarly, Harris wants to stimulate demand for housing, but she does not address supply constraints, which are largely a matter within the control of local government. She does not address how she would encourage local government to adopt the philosophy of “yes, build it in my backyard.” Under Harris’s housing proposals, the shortage of housing supply would increase. Fewer rental properties would be available. Prices would increase. Supply would fall. The housing crisis would be exacerbated. That is the clear lesson of price controls on housing. Homelessness would probably increase.
Harris has also flip-flopped on her views about fracking. The vice president said she now supports fracking. But why should we believe her? She also said she supports Biden’s green energy policies, which are proving to be uneconomic and would, in time, destroy the local economies that depend on the extraction of carbon-based fuels. Harris clearly does not understand that even if all of the promises of Biden’s green dream are realized, global warming will continue. Hundreds of billions of dollars in scarce capital would be destroyed.
Most egregiously, Harris’s proposed tax policies are economic insanity. Taxing unrealized capital gains is unconstitutional and would reduce incentives to innovate. Seemingly, Harris and her advisers do not realize that entrepreneurial geniuses only extract about 2.2% of the value of their innovations.
If this nation had been taxing unrealized gains it is questionable whether we would be the world’s leader in technology and e-commerce. Would Jeff Bezos have created Amazon if he had known that each year the wealth of his creation would have been confiscated?
Equally counterproductive to the ideal of mutual prosperity is Harris’s proposal to tax capital gains at rates similar to taxes on ordinary income. Harris does not understand that the capital invested to generate gains was already taxed when the income used for that capital investment was first earned. Her idea is to have income be taxed twice. Moreover, if capital gains are taxed at rates around 45%, why would individuals invest? The government would be taking almost half of the gains. Who would risk scarce capital when the government is a full partner in gains and walks away from losses? The U.S. already has the most progressive tax system among wealthy countries.
It is nonsense to argue that the federal tax system must be more progressive.
Harris also wants to raise corporate taxes to 28%. She ignores the fact that corporations also pay state corporate taxes. Her ideas on corporate taxes fly in the face of economic truths. The corporate tax provisions of the Tax Cuts and Jobs Act of 2017 were a clear success. Investment rose strongly, particularly in intellectual property, which is a crown jewel of the American economy. Capital was repatriated to the U.S.. Wages for labor increased. Jobs were created.
The data shows that when the combined federal and state corporate tax rates exceed 25%, total gross domestic product growth slows. High corporate taxes are a dead weight on the economy.
Most importantly, Harris and her advisers are disingenuous at best and mendacious at worst when they argue about poverty and inequality in the U.S. The U.S. has won the war on poverty when measured by household consumption. And after all government income transfers, including Social Security and Medicare/Medicaid, income inequality in the U.S. is similar to the levels of Western Europe.
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Americans are significantly wealthier than Europeans. The broad policy enabling of capitalist innovation has seen the U.S. economy soar over the past 15 years even as the economies of the European Union have stagnated. Don’t take my word for it. Just look at the data.
Why does Harris want to strangle America’s golden goose, the free market economy? Why does she want us to be more like Europe when the European economic model is so clearly a failure?
James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes a daily note on the markets, politics, and society.