07 February 2015

A Vicious Attack on the Rich

Stephen Kershnar
In Defense of the Rich
Dunkirk-Fredonia Observer
February 3, 2015

For President Barack Obama and the left, class warfare never ends. His latest budget plan proposes to soak the rich by raising capital-gains taxes yet again, jacking up the inheritance tax, and creating a new tax on banks. Earlier, he floated a new tax on college savings accounts, but this was embarrassing even for his fellow class warriors. He even proposed a new tax on corporation’s overseas profits. All this is on top of the new taxes included in Obamacare.

One thing is clear. Obama is a child. He has done nothing to reform federal entitlements, such as Social Security, Medicare, despite the fact that they constitute roughly half of federal spending and pose a threat to the government’s solvency. By the time he leaves office, he’ll have added almost as much public debt as all previous Presidents combined. His latest budget contains, roughly, half a trillion dollars in debt. The fact that the current deficit is not much larger is in part due to the budget sequester that the Republicans had to ram down his throat.  

It is worth considering why the rich are constantly being vilified and asked to pay more. The standard reasons given are fairness and efficiency. It is hard to see why it is fair to make the rich pay more. By analogy, consider members of a Jewish temple in rural Connecticut. The richer members pay more money ($10,000) and a higher percentage (5% of income) per year than middle class members (they pay $1,000 and 2%). Poor members go for free and their children get free instruction, books, and kosher meals. This arrangement might be a good way to allow the Jewish community there to flourish, but if poor members demand that, as a matter of fairness, the rich pay more, they are ungrateful takers. What seems most fair is that members pay the same amount.  

Similar to the rich members in the above case, in the U.S., the rich pay far more than their share. According to the Tax Foundation in 2010, their effective income tax rate was more than double that of the middle class and they pay far more in total dollars. They also pay the lion’s share of the corporate, capital gains, and inheritance taxes. Unlike the rich and middle class, the poor pay little, if any, income taxes. In fact, a significant number make money from income taxes through a welfare program called the Earned Income Tax Credit.

It is unclear why fairness demands that the rich pay more than the middle class and poor. People pay the same amount for McDonald’s hamburgers because they receive the same burgers. This seems fair. Why shouldn’t the rich pay the same amount for government services as everyone else? Arguably, fairness requires that the government should be more like McDonald’s in that people get what they pay for. 

Not only do the rich pay more in, but they likely take out less than do the middle class and poor. The poor get free or subsidized medical care, food, housing, education, utilities, and so on. These goodies are expensive. What’s more, a large portion of the bloated government would likely wither away if government officials couldn’t rationalize their job in terms of what they are doing for the poor.

The middle class also takes a lot out of the system in the form of Social Security and Medicare payments, money that is paid out of tax revenue in a pay-as-you-go system. These programs’ alleged surplus isn’t real. Rather, it consists of IOUs held by one government agency against another. Current benefits are paid out of current tax revenue. It is unclear whether the middle class is taking more out than they are putting in. 

While there are exceptions, many poor people are not deserving of large gifts of other people’s money. They are victims of their own choices. Heritage Foundation’s Robert Rector points out that if people do three things (1) graduate from high school, (2) marry before having children, and (3) hold a job, the chance of being poor is low. This can be a challenge growing up in many neighborhoods, and some people have just plain bad luck, but, for most people, it is not too much to ask.

Nor did rich people make poor people worse off by stealing from their stuff. Much of the wealth in our society is from intellectual and entrepreneurial breakthroughs concerning products and business rather than monopolizing limited natural resources. Consider, for example, Bill Gates, Warren Buffet, and Steve Jobs. It is not as if the rich people are Grinch-like thieves who stole from the poor while they slept.

Efficiency also does not provide a strong reason to raise taxes on the rich. Economic freedom (for example, low taxes and strong property rights) correlates with higher income. It also correlates with greater happiness and higher life expectancy, which is arguably what we should care about rather than focusing on money. Raising taxes on the wealthy reduces economic freedom and will, on average,  make us poorer and less happy. Some studies have even found that economic freedom correlates with economic equality. In any case, the gap between the rich and poor has widened during Obama’s presidency, suggesting that his punitive taxes on the rich have not had their intended effect. 

A common response to this is to concede that neither fairness nor efficiency favors raising taxes on the rich. Still, the respondent claims, basic decency requires that we be compassionate toward the less fortunate and the government redistribution wealth is one way this is done. Perhaps this is true, although I doubt it, but demanding more of the rich when they already pay at least one of every three dollars they make to the government is not compassionate. Instead, it makes the rest of us ungrateful takers.  

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