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Argument: Progressives wrongly presume society can determine proper income

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Friedrich A. Hayek. "Taxation and Redistribution". The Constitution of Liberty. 1960 - 7. One of the chief reasons why progressive taxation has come to be so widely accepted is that the great majority of people have come to think of an appropriate income as the only legitimate and socially desirable form of reward. They think of income not as related to the value of the services rendered but as conferring what is regarded as an appropriate status in society. This is shown very clearly in the argument, frequently used in support of progressive taxation, that "no man is worth 10,000 pounds a year, and, in our present state of poverty, with the great majority of people earning less than 6 pounds a week, only a few very exceptional men deserve to exceed 2,000 pounds a year. That this contention lacks all foundation and appeals only to emotion and prejudice will be at once obvious when we see that what it means is that no act that any individual can perform in a year or., for that matter., in an hour can be worth more to society than 10,000 pounds ($28,000). Of course, it can and sometimes will have many times that value. There is no necessary relation between the time an action takes and the benefit that society will derive from it.

The whole attitude which regards large gains as unnecessary and socially undesirable springs from the state of mind of people who arc used to selling their time for a fixed salary or fixed wages and who consequently regard a remuneration of so much per unit of time as the normal thing. But though this method of remuneration has become predominant in an increasing number of fields, it is appropriate only where people sell their time to be used at another's direction or at least act on behalf of and in fulfillment of the will of others. It is meaningless for men whose task is to administer resources at their own risk and responsibility and whose main aim is to increase the resources under their control out of their own earnings. For them the control of resources is a condition for practicing their vocation,'just as the acquisition of certain skills or of particular knowledge is such a condition in the professions. Profits and losses are mainly a mechanism for redistributing capital among these men rather than a means of providing their current sustenance. The conception that current net receipts are normally intended for current consumption, though natural to the salaried man, is alien to the thinking of those whose aim is to build up a business. Even the conception of income itself is in their case largely an abstraction forced upon them by the income tax. It is no more than an estimate of what, in view of their expectations and plans, they can afford to spend without bringing their prospective power of expenditure below the present level. I doubt whether a society consisting mainly of "self-employed" individuals would ever have come to take the concept of income so much for granted as we do or would ever have thought of taxing the earnings from a certain service according to the rate at which they accrued in time.

It is questionable whether a society which will recognize no reward other than what appears to its majority as an appropriate income, and which does not regard the acquisition of a fortune in a relatively short time as a legitimate form of remuneration for certain kinds of activities, can in the long run preserve a system of private enterprise. Though there may be no difficulty in widely dispersing ownership of well-established enterprises among a large number of small owners and in having them run by managers in a position intermediate between that of an entrepreneur and that of a salaried employee, the building-up of new enterprises is still and probably always will be done mainly by individuals controlling considerable resources. New developments, as a rule, will still have to be backed by a few persons intimately acquainted with particular opportunities; and it is certainly not to be wished that all future evolution should be dependent on the established financial and industrial corporations.

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