A World of Wealth: How Capitalism Turns Profits into Progress by Thomas G.Donlan

Author:Thomas G.Donlan
Language: eng
Format: epub
ISBN: 9780132703710
Publisher: FT Press

The Robin Hood Principle

Of all the cultural legends handed down to us from the Middle Ages, Robin Hood has provided the most enduring economic model. The familiar tale of the outlaw who robbed from the rich to give to the poor was crystallized in the Victorian era by the American author and illustrator Howard Pyle in The Merry Adventures of Robin Hood.

Pyle's version of the fable has it that Robin Hood was an outlaw who had killed a man in an argument. Taking refuge in Sherwood Forest, he found others—poachers and victims of injustice—who were also outlaws. Says Pyle:

"Even as they themselves had been despoiled, they would despoil their oppressors, whether baron, abbot, knight, or squire, and they vowed that from each they would take that which had been wrung from the poor by unjust taxes, or land rents, or in wrongful fines. But to the poor folk, they would give a helping hand in need and trouble, and would return to them that which had been unjustly taken from them."

Pyle's Robin Hood stories taught generations of young readers about the virtues of justice and generosity. They also taught that if the officials in authority are oppressive, they can be rightfully opposed. Their ill-gotten gains can be taken from them and distributed to their victims.

Latter-day Americans sometimes forget these details about Robin Hood economics: Robbing from the rich and giving to the poor is not automatically just. It is much less so when it is done by government policy.

Most industrialized nations, however, have enshrined a powerful form of Robin Hood economics in their income-tax codes. The authors of the progressive income tax, which is the largest revenue-raiser in the United States, were not content with the idea that people should pay taxes in proportion to the size of their income. They held out for the idea that people should pay higher and higher rates of tax as their income rises.

In the U.S., some who earn very little income pay no tax—in fact, a program called the Refundable Earned Income Tax Credit pays some of them a negative income tax. For 2005, the IRS, acting as an official Robin Hood, paid such taxpayers $38 billion. Then a basic rate of 10 percent was paid in 2005 on taxable incomes of up to $7,300 a year earned by single persons. After that, tax rates rose, on the amounts above certain income points. The marginal tax rate on income above $7,300 was 15 percent, up to $29,700; then 25 percent from there up to $71,950; then 28 percent from there up to $150,150; then 33 percent up to $326,450; then 35 percent above that.

These rates are not fixed; they are just percentages pulled out of the air by tax-writing Congressional committees late at night as they tried to finish crafting the latest tax law.

According to the Congressional Budget Office, the results are steeply progressive.

The lowest 20 percent of American income-tax filers, with an average pretax income of $15,400 a year, paid an effective federal tax rate of 4.

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