Issues Paper

Over the last 200 years America has been the world’s forerunner in economic prosperity.  One of the many contributing factors to America’s economic success has been its capitalistic economic system.  The American economic system is such that an individual with almost nothing has the opportunity through their hard work and determination to rise from the lower class to the upper class.  This is a rare case of economic mobility that almost every country in the world lacks.  As a result of this there has been a huge immigration into the United States in the last 200 years because of the realized economic opportunity the American capitalist system offers.  Because of incentives for entrepreneurs, this same system facilitates the growth of new businesses creating capital and jobs.  The entrepreneurial spirit of America has led to one of the largest and most wealthy middle classes the earth has ever seen.  Today the future of the great American economy is in question.  Many fear a declined economy and a fall from being a leader in the world’s economy.  One of the main contributors to the economic downturn for the United States has been the push of the last century for more income equality.  The idea for income equality is rooted in the fact that all men are created equal and should be given a fair chance in this life.  The push for income equality and redistribution of wealth in the United States has weakened the capitalistic economic system pushing it toward a more socialized system in turn hurting the United States economy and subsequently the world’s economy. 

            In order to understand why the United States has been so prosperous economically one must understand the principles that the economy was founded on.  The founding father created a nation that was founded on the idea of unalienable rights given to man by God.  These rights included life, liberty, and the pursuit of happiness.  The early American economic system reflects the belief in these rights. A Laissez-faire system (hands off) was set up meaning that there would be minimal government intervention in the economy.   The system gave individuals the opportunity to create wealth and help the economy grow by protecting their rights to economic freedom.  An American economic culture of hard work and the “American dream” developed as a result.  This dream spread throughout the world making America the most economically appealing country for immigrants. The founding fathers included in the Constitution that congress had the power to impose "Taxes, Duties, Imposts and Excises," The same article also requires that, "Duties, Imposts and Excises shall be uniform throughout the United States."

            The idea of an income tax was first flirted with during the War of 1812 and later the first wartime income tax was passed after the Civil War.  The purpose of the tax was to fund the war efforts. In 1894 the first peacetime income tax was passed and a year later declared unconstitutional.  Later in 1913 Congress passed the 16^th amendment allowing the government to tax income.  Income was taxed very little initially, around 7%, and then that number rose quickly to as high as 94% during World War 2 for those in the highest tax bracket.  Today the highest tax bracket percentage is taxed at 35% for income over $388,351.  Income taxes were originally introduced as a way for the government to fund war activity and run the country.  As time has gone on the idea of taxing the rich to help the poor has become more prevalent.  Today there is a push to raise the tax burden on the upper class in order to have more money available to support the lower class of Americans.  The main idea is tax the rich and give to the poor. 

            The American dream that was created by the early American laissez-faire economic system has been suffocated by the idea of redistribution of wealth.  Much of America’s prosperity has been created by individuals who were willing to take high personal economic risks for the chance of high economic returns.  With a push toward redistribution of wealth the potential economic returns of taking economic risk have been lowered.  Creating an economic system where an individual is more reluctant to take on risk in order to become wealthy.  When an individual becomes wealthier they are able to contribute more to the overall economy in the form of more consumption of goods, the creation of jobs, and an increase in investments.