From Faith to Free Markets, Part 2
By the 1980s, the fusion of theology and free market economies had matured into an article of political faith. Ronald Reagan’s famous line “Government is not the solution to our problem; government is the problem” didn’t just express fiscal conservatism; it carried moral weight. To millions of Americans, it felt like scripture. Government aid was no longer seen as pragmatic support in hard times but as a moral hazard—a temptation that lured people away from responsibility and virtue.
Economists like Milton Friedman gave this worldview intellectual polish, arguing that the market, left free, would reward merit and discipline. Religious conservatives gave it spiritual sanction, teaching generations to admire grit, sacrifice, and self-control. Those virtues are real, and they matter. But over time, they were used to explain away suffering and justify shrinking public responsibility. Together, this began to echo prosperity gospel logic, where success is treated as evidence of virtue and struggle as proof of failure. Most people would never say it that bluntly, but the assumptions often show up in how people talk about taxes, poverty, and public aid.
For many conservatives, this alignment of faith, freedom, and markets felt deeply reassuring. It promised order and moral clarity in a rapidly changing world. But the economic reality was less kind. Wages stagnated while wealth concentrated at the top. Trickle-down prosperity rarely trickled far. The same policies that were said to honor hard work often left working people with fewer supports, higher costs, and greater precarity. Nevertheless, the moral script endured.
In a recent article, a commenter argued
The rich are the ones that pay the majority of taxes. So if there is a refund then the rich should get it. In reality, taxes should be the exact same for everyone. The poor and rich alike should pay the same percentage. Let me point out that in income tax the poor get more back than they contribute. For them there is no such thing as income tax. It is more properly a tax income.
These lines of reasoning illustrate a familiar defense of tax cuts for the wealthy: the idea that because high-income households contribute a large share of federal income tax revenue, their tax burden must be reduced to sustain the economy. The argument is typically paired with the assumption that lower taxes will increase investment, spur job creation, and ultimately benefit everyone. On the surface, it sounds like a reasonable conclusion. But while parts of this story are factually grounded, it often leaves out critical context. And when we build policy on half-truths, the costs don’t fall evenly. They land on the people with the least room to absorb them.
The wealthy pay a large share of federal income taxes, but that’s not the whole story.
When people talk about “taxes,” they usually mean federal income taxes, and it’s true that this is where high-income Americans pay the most. But this is also where the “everyone should just pay the same percentage” argument begins to break down. A flat tax assumes that equal percentages produce equal consequences. They don’t. A flat tax is not as simple as one family losing a little comfort and another family losing a little luxury. In practice one family may lose their ability to heat their home and another family loses… nothing meaningful. That’s the outcome of living in a society where the bottom half is budgeting for survival and the top is budgeting for luxury. For many families, the question is not whether they value responsibility, it’s how well they can survive a normal crisis. Equal percentages on paper can translate into radically unequal consequences in real life.
When you widen the lens beyond federal income tax, the story becomes more complicated, because many of these taxes hit working and middle-class families harder as a percentage of income. So if someone says, “The rich pay the majority of taxes,” we should ask, which taxes? Most working people pay more than federal income tax [1]. They pay payroll taxes (Social Security and Medicare), sales taxes, property taxes (directly or through rent), state income taxes in many states, fees, tolls, and other costs tied to public services. How the wealthy earn income also matters. Different kinds of income are taxed very differently under U.S. law. A growing body of research suggests that the wealthy pay lower effective tax rates overall than many middle-income households. [2]
Wages and Wealth and Taxes
Wage Income: Most working Americans earn their income from wages. Taxes on wages are automatic and unavoidable. There is no way to delay when wages are taxed, restructure them, or shield them from payroll taxes. Taxes come straight out of the paycheck.
Investment Income: By contrast, a large share of income for very wealthy households comes from investments such as stocks, business ownership, and other assets that increase in value over time. This income is generally taxed at lower rates than wages, particularly when it takes the form of long-term capital gains or qualified dividends. In many cases, it is taxed only when the asset is sold.
Unrealized Gains: If a billionaire’s stock increases in value by millions or billions of dollars in a year, that increase is not taxed unless the asset is sold. Gains can accumulate year after year without triggering tax. By contrast, when a worker receives a raise, that income is taxed immediately.
Payroll Taxes: Workers pay Social Security and Medicare taxes on wage income up to the payroll cap. Most investment income is not subject to these taxes at all. As a result, labor income generally faces a higher combined tax burden than income derived from wealth.
Business Income: Many wealthy individuals earn income through business ownership rather than wages. This income can receive preferential tax treatment, face lower effective rates than labor income, and offer flexibility in timing and reporting that wage earners do not have.
Wealthy Flexibility: Because wealthy individuals control when assets are sold, they can time income to minimize taxes. They can also borrow against assets instead of selling them, allowing them to access cash without generating taxable income. Wage earners do not have this option.
Never Taxed: In certain cases, large accumulated gains are never taxed at all because assets receive a new tax basis when passed to heirs, effectively wiping out decades of untaxed appreciation.
Tax Advantages: Tax advantages are legal features of the tax code, but they are not equally accessible. Taking advantage of them often requires specialized legal and accounting expertise and sufficient wealth to structure income over time, giving income derived from wealth far more flexibility than wages.
The Result: Even though wealthy people may pay large dollar amounts in taxes, the share of their total economic income devoted to taxes is lower than what many middle-class workers pay.
Teacher vs Wealthy Investor
Imagine a teacher and investor who each report the same income. For comparison purposes, we’ll use $70,000 in wage income in a given year.
The teacher’s $70,000 is their livelihood. It has to cover housing, food, transportation, healthcare premiums and deductibles, emergencies, and retirement savings. Any unexpected expense, a medical diagnosis, a car repair, a rent increase, immediately eats into what little margin they have. For them, this income is not discretionary. It’s what stands between stability and crisis.
The wealthy investor also reports $70,000 in wages, but their economic reality is entirely different. Their housing is an appreciating asset. They can afford comprehensive health insurance, meet deductibles and medical costs out of savings. Their retirement is already secure and continues to grow. Their assets can be borrowed against, sold selectively, or used to cushion any shock. That same $70,000 functions as spending money, not survival money.
On paper, their incomes look identical. In reality, the impact of taxation is not. One person is exposed to risk at every turn. The other is insulated from it. This is why focusing only on annual wage income misses the deeper picture. Wealth doesn’t just increase what you can buy. It reduces vulnerability and protects against risk. And a tax system that focuses primarily on wages while lightly taxing wealth can result in the wealthy paying lower effective tax rates than many ordinary Americans [2].
Beyond Caricatures
If a factory worker gets cancer at 52, that isn’t a character flaw. If a child is born with a serious disability or complex medical needs, that isn’t laziness. If a parent loses a job during a recession, that isn’t irresponsibility. A society can believe in hard work and still honor a basic social contract: that people who do their best should not be destroyed by bad luck, unequal opportunity, illness, or other forces beyond their control. I think that’s something most reasonable people can agree on. But caricatures of those on public assistance persist. And the evidence doesn’t match the stereotype that assistance mostly goes to people who refuse to contribute. SNAP, for example, supports millions of Americans working in low-paying jobs. Many people are working full-time and still need a second job, gig work, or public support to cover the basics. A full-time job should cover the basics, but increasingly it does not. For many workers, the primary problem is that wages have not kept pace with the cost of housing, transportation, healthcare, food, and childcare.
Likewise, most non-elderly Medicaid enrollees who can work do work. Historically, when America invested more heavily in broad public goods and more balanced opportunity, including the mid-century decades so many people romanticize, the result was a larger and more stable middle class. Social programs were part of the infrastructure of upward mobility. In a future piece, I’ll examine this more directly by comparing how different countries structure taxes, healthcare, education, and family supports, and the outcomes those policies produce.
The wealthy did not get wealthy in a vacuum.
Wealth is built in a society that provides public infrastructure, courts and contract enforcement, educated workers, stable currency and financial systems, the postal system and shipping networks, highways and airports, research institutions, and public safety and disaster response. Wealth is built because millions of people show up every day to do the often invisible work that keeps life running, including low-wage labor that delivers, stocks, cleans, serves, builds, and cares. And beneath all of it is the foundational labor that rarely appears in economic debates at all: unpaid caregiving and domestic work, still disproportionately carried by women, which produces and sustains the next generation of workers and absorbs the costs that employers and markets do not. It benefits the whole economy, but it often leaves the caregiver carrying the cost through long-term economic vulnerability. In other words, private wealth is built on public foundations and women’s unpaid labor. So the question is not whether wealthy people “deserve” what they earned. The question is whether they should be allowed to keep extracting wealth while privatizing the gains and offloading the costs, leaving everyone else to maintain the systems that make their wealth possible, and resisting the very investments and public programs that keep the economy stable for others. This is why cuts to programs like Medicaid are not just “budget decisions.” They are a decision to shift risk and suffering downward, onto people who are already carrying the most fragile parts of the economy and have the least margin for error. And when that becomes our governing philosophy, the result is predictable: income inequality grows, while opportunity and security shrink.
[1] When people say “working people/families,” they usually mean households living on wages and salaries, trying to cover rent or a mortgage, food, childcare, transportation, and healthcare, without large savings or investment income to cushion a crisis.
[2] Hanlon, S., Buffie, N. (2021). The Forbes 400 Pay Lower Tax Rates Than Many Ordinary Americans. The Center for American Progress.
Lempinen, E. (2025). The ultra-rich are different from you and me. Their tax rates are lower. UC Berkeley News.
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