Class Warfare

The Objectivist
THE RICH, FOXES, AND HENS
Dunkirk-Fredonia Observer
July 8, 2007

We are once again being treated to class-warfare politics. Presidential candidate John Edwards declares, "Our tax system has been rewritten by George Bush to favor the wealthy and shift the burden to working families. That is simply wrong." In 1992, Presidential candidate Bill Clinton claimed that it was time to make “the rich pay their fair share again.” Congressional Democrats constantly bemoan tax cuts for the rich. These demagogues keep trying to further the lie that the rich don’t pay their fair share.

A little background is in order. The government is engaged in an all-out war against your wallet. According to a Tax Foundation study, the average U.S. household in 2004 paid $26,738 in taxes. This consists of $17,338 to the federal government and $9,400 to state and local governments. Since average households (middle 20% of households by income) make between $42,305 and $65,000 this is an ungodly sum.

The reason you don’t remember paying that much is that the attack is dispersed and largely hidden. The voracious federal government imposes payroll taxes (Social Security and Medicare), income taxes, corporate taxes (Who do you think pays them?), gasoline taxes, airplane taxes, telephone taxes, alcohol taxes, etc. The greedy state and local governments impose taxes on many of the same things, plus some new and creative assaults such as property, utility, and insurance taxes.

The rich pay through the nose. In 2004, the top fifth of households paid on average $81,933 in federal, state, and local taxes. In contrast, the bottom 20% of households paid on average $4,325 in taxes.

As a side note, it doesn’t take much to get into the top fifth. Any household making more than $99,502 made it. In 2006, for example, 21 Fredonia State administrators and faculty made more than $100,000 by themselves and many have working spouses. I would be surprised if they considered themselves rich.

Despite paying a small fraction of what the “rich” paid, the lowest fifth of taxpayers made out like bandits. They were on average given $31,185 in government benefits above and beyond the taxes they paid. Another way to look at it is that they received $8.21 for every $1 paid in taxes. The lower middle class (second fifth) also did well. On average, they received $18,067 in government benefits above and beyond the taxes they paid. They got $2.51 for every $1 paid. Predictably, the top fifth took it in the shorts. They paid $48,449 in taxes compared to benefits received and only got 41 cents for every $1 paid.

Consider the different ways we could tax citizens. We could tax at a flat fee, a flat income-tax rate, or a progressive rate (where those making more money pay a higher percentage of their income). There is nothing fair or just about a flat rate, let alone a progressive one. We don’t think that McDonalds should charge more to richer customers. Instead we think that people should pay for what they receive. The same should be true for government goods and services. This conclusion becomes more obvious when we remember that the poor and lower middle class get more benefits. It’s as if a poor family ate three more hamburgers than a rich one and then angrily demanded that McDonalds charge them less.

A flat tax still allows for income redistribution, although this is unfortunate. It is arguably unjust to force the rich to work for the poor. Consider the Christmas Carol and whether you think that Bob Cratchit may force Scrooge to give money to Tiny Tim. Clearly not. Nor does this change if Cratchit’s neighbors get in on the act. The same is true even if the neighbors schedule a friendly neighborhood vote on the matter. It’s not their money. Forced redistribution of wealth is just the systematic taking of stuff from Scrooge and people like him. Democracy doesn’t justify such a taking any more than it would justify the outcome when two foxes and a hen vote on what’s for dinner.

It’s worth noting that the rich didn’t cause the state of the poor. Robert Rector of the Heritage Foundation points out that in the context of poor children, two major causes of poverty have little to do with the rich. Rector points out that poor households with children are on average supported by an average of 16 hours of work per week. In addition, nearly two-thirds of poor children reside in single parent homes. If people in the household worked a combined 40 hours a week or poor mothers married the fathers of their children almost 75% of currently poor children would no longer be poor.

One solution to ease the burden on the rich is to adopt a flat fee or, if this is not politically viable, a flat income-tax rate. Another solution is to cut overall welfare liabilities. One example of going in the wrong direction was the recently defeated Kennedy-McCain immigration bill. The bill attempted to amnesty 12 to 20 million illegal aliens. The costs of this bill were staggering. Robert Rector, continuing his yeoman work, estimates that each low-skilled immigrant household costs taxpayers $19,588 per year (benefits minus taxes) and $1.2 million total and well over half of illegal aliens are low skilled. 50-60% lack even a high school degree. That this bill was even considered should tell the rich all they need to know about who the President and Senate want to have for dinner.