Extremes never work, so extreme capitalism and extreme socialism are probably as bad as each other. The answer almost certainly lies slap bang in the middle.
Using capitalism to create as much surplus as possible, and using socialism to ensure that the surplus get's divided fairly amonst the worst off.
The problem is, what constitutes the surplus? I could certainly live quite comfortably on 50,000. But if someone is willing to pay me 1,000,000 to do my job, does that mean I have a 950,000 surplus that the government can take for the less well off.
(Dear Mr Taxman, I don't earn 1,000,000)
One way of determining a fair surplus is to view that side of things from a Capitalist perspective. If taxes are too high, your highest surplus producers will shop around and go live somehwere that offers better Value for their Tax spend.
You don't want them leaving, so you drop your price to keep them spending their Tax here rather than abroad.
take this to the extreme, you let them avoid paying almost any tax, in return for them employing workers who will pay tax.
I think In Ireland we do OK on the Capitalist side of things, encouraging business, inward investment etc. But we're very poor on the Socialist side, spending the Surplus to create a better society.
-Rd