Dictionary definitions of “Socialism” don’t seem to fit the way it’s often used. For example Merriam Webster tells us Socialism is “collective or governmental ownership and administration of the means of production and distribution of goods,” which sounds a lot like Communism. The term “Socialism” is most often used to describe government support for and management of social programs, namely, disability insurance, education, mass transportation, roads, and health care, all those services all people need but cannot be expected to pay for out of pocket because they require the pooling of community resources with democratically agreed-upon regulations. The free market provides for the basic needs of the individual, and a government provides for the basic needs of collective civilized society that takes care of its own.
The question, What is Socialism? comes down to this: How does the government raise funds for social services? By owning the country’s natural resources outright, taxing corporations that own natural resources, taxing personal income, charging user fees or by creating the funds for that purpose?
Government Ownership of Natural Resources
Some Socialist governments use the income from owning natural resources to fund social programs; for example, Venezuela owns oil fields and uses profits to fund social services. In theory, this seems like a good strategy. The wealth of the country’s natural finite resources are, after all, owned collectively by the people, present and future. In practice, however, government-controlled lucrative industries like the oil business can become corrupted. It is difficult for a government to regulate itself. Dictators are born this way.
Corporate Tax on Private Ownership of Natural Resources
Alternatively, a country’s natural resources can be “owned” privately and taxed in order to raise funds for social programs. With this kind of ownership, the corporation is really “renting” the natural resources from the people. In this situation, ideally there is separation of business and state, such that government can regulate the industry, tax it, keep it from harming the environment and creating health hazards.
Unfortunately, in the U.S. the oil industry, for example, is so centralized and power so concentrated — and very, very wealthy — that it can wield power over the government by lobbying political representatives and writing regulations, and by getting oil industry people into high offices. A Direct Democracy, wherein the people constrain the votes of the representatives in Congress and the Senate, would help create a better separation of business and state so that a fair tax on private ownership of natural resources could be levied.
Tax on the People
An income tax on the people might be levied to pay for, say, universal health care, but what happens when a person can’t afford to pay the tax? Will he/she be denied service? What if the tax for universal health care adds an additional burden on already overburdened poor and middle class? What if one person has to pay a high tax and never uses health services because he/she takes good care of him/herself, while a person who pays low or no taxes drinks, smokes, uses drugs and eats nothing but junk food?
Charging Sliding Scale User Fees
Alternatively, those that use the services could pay for them. Those that don’t use the services would not pay for them. If a government provides services at cost, citizens may be able to pay out of pocket. Sliding scale user fees could help make up for income disparity. Consumption taxes on unhealthy products such as cigarettes and alcohol could help pay for health care. This is inherently more fair than taxing everyone.
Direct Treasury Funds
Because sliding scale fees and consumption taxes would not cover the full amount necessary for a first-class social service system, a another solution is needed. Fractional-reserve banking (the Federal Reserve) should be phased out, allowing the U.S. Treasury to create currency (only) to build and maintain public infrastructure projects — roads, mass transit, utilities, hospitals, parks, community centers and schools. The government would then operate like a non-profit co-operative providing services to members (all citizens) at low cost.
In conclusion, if we want to avoid robbing Peter to pay Paul, social programs would be best provided by a combination of corporate tax on private ownership of natural resources, sliding scale user fees, consumption taxes, and direct funds from the Treasury to build and maintain public infrastructure assets.
See What, exactly, is Capitalism?