Over the past month, I have been preparing for a long haul
from San Diego to Montreal. Today, I had
my first chance in a month to fully collapse into the warm glow of the Internets. Ahhh.
One of the first items I found was this Presidential stump speech. The video has sparked
controversy. Personally, I was upset by
the realization that, despite my recent move to Canada, I may never be able to
pay back my ginormous, almost existential, debt to the Federal Government of the United States.
It’s easy to get pissed about the leader of the free world’s
apparent scorn for the stuff of an open society. It’s easy to get pissed because these
broad-brush statements are always partly true.
Take this statement, for example:
“If you’ve been successful, you didn’t get there on your own.”
Indubitably, Mr. President.
We live in a society and the population far exceeds numero uno. In such a place, it is hard to make it to
Walden’s Pond, let alone the upper echelon of the income bracket, on your own. You don’t have to be one of those “many smart
people out there” to arrive at this conclusion.
So, Mr. President, to whom do you speak when you deign a vindication of
such an obvious proposition?
Given the context of the speech, the President’s most likely
targets are wealthy people and their libertarian apologists. But do these
pesky government-doubters actually believe that they forge their economic
destiny on their own, too masculine and independent for sentimental social
cooperation? Not really.
Libertarians understand social cooperation quite well, thank
you ever-so-much. Don Boudreaux notes how Adam Smith “famously marveled that the production of an ordinary woolen
count requires countless workers, nearly all of whom are strangers to the
coat’s owner.” A familiarity with free markets (beyond a cursory understanding
of Ayn Rand) would obviate the remarkability of the President’s statement.
So what is Obama’s point?
By all means, let the man explain himself: “The point is, is that when we succeed, we
succeed because of our individual initiative, but also because we do things
together.” Yes! Perhaps Obama sat in on some economics
classes in Chicago because he succinctly presented the benefits of an Adam Smithian division of labor.
Unfortunately, Obama goes wide of the mark through his
understanding of the word “we” as used above. Obama means that individual initiative is
unleashed when government collects taxes from you and me—that amalgam is the
“we”—and provides infrastructure, security, and other public goods and
services.
First, let’s examine the sort of “we” that would actually lead to economic success. We
truck and barter and come to rough estimations about what we desire and how
much we’re willing to give up. If exchange is left largely unrestricted, we higgle and bargain over how to
produce these desired goods. People
bring their respective capital, talents, and productive property to the proverbial
table and we thusly form myriad working relationships.
In this way, we meet
society’s changing needs and wants.
Also, as Bryan Caplan points out, economic society invites everybody to
participate. Even if their productive
capabilities are relatively meager, “the Law of the Comparative Advantage implies gains to trade." This is only a rough
sketch of how we succeed in a free market, but it is appropriate for a stump
speech.
Then again, a successful economy is made up of more than the
Invisible Hand postulates. All this free
exchange does not happen in a vacuum. Perhaps
the President was referring to the institutional support necessary for a
prosperous society. But again, he goes
wide of the mark by conspicuously neglecting government’s biggest role in the
economy. In a big society, we pay taxes to
government so they can enforce conventional rules of property, bind people to
their contractual promises, and allow for consensual transfer of goods and
services (this basic formula is courtesy of David Hume).
When government performs these tasks, they create an environment
ripe for general prosperity. (look
at the graphs starting on p. 20 of linked article for evidence of
prosperity). Along the way, businessmen
will reap immense profits. But
government can dispose of these duties on the cheap. In
point of fact, our government allocates the vast majority of taxes toward
programs far removed from capitalism’s support system.
As Will Wilkinson notes, most outlays go toward “the health
and longevity of America’s elderly”.
Opinions can differ about the merits of these programs, but they are “not
part of the vital infrastructure of business.”
In our real-life fiscal situation, arguing that the rich have been
“skating by unfairly” is “old-fashioned demagoguery”.
Over the years rates have changed, but one thing has stayed
the same: tax revenues have been
healthily progressive. According to the CBO, in 2009,
the highest quintile of earners pulled in 52% of income, but they paid 68% of
all tax liabilities. The bottom three
quintiles of Americans earned 28.4% of all income, but only contributed 13.3%
of total tax liabilities.* Contrary to
popular opinion, it is unclear that these numbers are the result of exploding inequality. The Gini coefficient was
lower in 2009 than it was ten years ago and is basically the
same as it was in 1988.
It is safe to say that to the extent the very
wealthy came upon their riches by virtue of government initiative, they’ve
already paid off that debt many times over.
So, Obama’s speech was a dud on various levels. On the other hand, I agree with Wilkinson when
he astutely asserts that just because the President lacks a good case for raising
top (or any) tax rates, does not mean that none exist. We all, including the wealthy, may have some
sort of calling to help fellow members of our society, especially the most
vulnerable, and maybe that could include paying more taxes.
In my view, the two most
vulnerable groups are the destitute poor and future generations (i.e. the young
and the not yet born). If we raise taxes (let’s assume tax revenue goes up) will this go to improve the lot of either of these groups? Au
contraire.
Since the War on Poverty
started in 1964, the Federal government alone has spent $12 million dollars “helping” the poor, yet the rate of poverty remains the same. This year the entire government will appropriate
almost $1 trillion dollars to hundreds of programs designed to help the
poor. This amounts to $20,610 for every
poor person. Unfortunately, our
inefficient and leaky system prevents most of these benefits from reaching the
nation’s poor.
But nobody is hurt more by government spending patterns than
the young and unborn. Youth is truly wasted on the young, so why let future earning accrue wastefully to them, too?. Nick Gillespie points out the logically obvious, “it’ll be [young people’s] future earnings that will pay the taxes to
cover the massive amount of debt that local, state, and federal governments
have rung up over the past few decades.”
Government
has defiled and shaken down future generations in countless ways. As if they weren’t already
financing the health care of their relatively wealthy elders, Obamacare was purposefully built on the backs of young people.
It is no wonder that the net
worth of households headed by people 65 and up have been rising since 1984,
while households headed by people younger than 35 have been dropping.
I’m
beginning to digress. Here’s the point: it is abundantly clear that extra taxes will not be put toward these pressing
issues. If government made a credible
promise to pay down the deficit and shore up our liabilities with new tax dollars, then, by all means, raise taxes!!
Let’s
say we balanced the budget, and the government wanted to implement a safety net like the one Matt Zwolinski outlines here, then I’d invite an IRS agent in for coffee when he came to collect.
As
far as more taxes being used to create more public goods (beyond the Humean services I outlined above), I once again assert that this government
function can be carried out at a fraction of our current spending. Moreover, it is unclear that government can provide these public goods more efficiently than private citizens (say, rich
entrepreneurs) could. This is a complicated matter for another
post. For now, consider the mounting
pile of Federal cash spent on public education compared to the stagnating and
lousy educational results.
When
it goes beyond its necessary functions, the state is just as likely to stultify
than stimulate with each dollar it collects and spends. The 20th century provided decisive empirical proof of this economic postulate.
Nevertheless,
government always comes asking for more money.** Unless you believe the state has an
open-ended claim on the fruits of our labor, any duty we have to oblige it must
be logically persuasive. Here, the
President’s case consists of truisms and cloying non-sequiturs. Thankfully, I believe he is barking up the wrong tree.***
*The data I present here compares average income with average total tax liability. As you
can see, tax revenues on a whole are very progressive, but when you look at income tax revenue, it becomes far more progressive. Indeed, the top 400
richest Americans pay nearly as much in income tax as the bottom 50% of
earners combined.
**I just got into a story about how some priceless fiscal chicanery at the California State Parks Department. Turns out the Department deliberately hid a
$56 billion dollar surplus in order to bolster their public fight to fend off
budget cuts. Like the Federal government,
California is asking its citizens to pay more in taxes.
***I am not a political scientist, but I agree with my former professor Tom Smith. This is a
legitimate and winning issue for Mitt Romney. Before this, I didn't think he had a chance at winning the election. I seriously think this could change some people's minds. Though I
wish Mitt would make this speech.
