Killing the goose.

Question #4 in my post Questionnaire 18 was:

4. PEOPLE OFTEN TALK ABOUT THE GROWING GAP BETWEEN THE RICH AND POOR. HOWEVER, TODAY’S POOR (IN THE UNITED STATES, AT LEAST) ARE MUCH BETTER OFF THAN MOST PEOPLE (NOT JUST THE POOR) WERE A CENTURY AGO. DOES IT MATTER THAT THERE’S AN INCREASING GAP BETWEEN THE RICH AND THE POOR IF THE STANDARD OF LIVING FOR THE POOR KEEPS GOING UP?

My original response was: “I started writing a few paragraphs in response to this, and thought I’d better make a separate blog post. In short: ‘Yes, but not for a good enough reason.'”

I’d like to flesh that answer out a bit now.

An increasing gap between rich and poor matters because people care about it, worry about it, and react to it. The gap causes resentment. Resentment leads to hostility. Hostility leads to instability. Thus many seek to prevent or mitigate the instability with platitudes about inequality and policies meant to alleviate it, i.e., redistribution from rich to poor via taxation.

But I don’t think inequality per se is a good enough reason to tax anyone. The mere fact that Bill has more money than Mike does not justify taking money from Bill and giving it to Mike.

An objector might ask, “What if Mike is starving and Bill is the richest man on Earth?”

That’s a different issue. I might be willing to tax Bill to keep Mike from starving (assuming Mike isn’t gaming the system, which itself is yet a different different issue). But once the necessities are covered– and we can certainly argue about how best to cover them– I can’t justify taxing money away from others to make you feel better about not having much.

And yet I suspect that one day, when worrying about a meal or a roof is a long-distant memory for even the lowest of paupers, we’ll still hear the whine of a cosmic justice warrior decrying the fact that only the rich can afford replicators and transporters while the rest of us have to settle for pizza rehydrators and fusion-powered flying cars.

Inequality matters only because we live in a democratic country with people who care about inequality. But to me, that’s not a good enough reason. The standard of living for the poor– which is the far more important matter– keeps rising, and will keep rising unless we enact really stupid policies that discourage us from producing enough to keep that standard rising. The harder you fight inequality– the more you take from the rich to give to the poor– the more you discourage that production.

It is no consolation to today’s poor that they live better than the poor of the past. After all, who are you more likely to compare yourself to: anybody in 2015 or anybody in 1915? It’s natural to compare yourself to your contemporaries; it’s difficult to compare yourself to your predecessors. And because we have a natural tendency to compare ourselves to our contemporaries, we are inclined to let that tendency affect our policy preferences.

Try campaigning for office with the motto “You’re better off than you would’ve been during World War I!” After you lose that election, go back in time and do the campaign all over again with the motto “Everyone deserves the same cell phones and internet access!” Compare results.

“Take from the haves; give to the have-nots” works better on the campaign trail than “we have to allow long-run capital stock growth.” Still, to paraphrase Uncle Milt: an economy that puts equality before growth will get neither. History is rife with such lessons. And God help us if in the name of equity or fairness, we take so much that the makers stop making.

I would not trade my economic circumstances at age 38 with those of any of my ancestors when they were 38. No cell service, no internet, medicine decades behind the present day, horrible gas mileage, maladies yet untreatable and uncurable… no thank you.

13 revisions in the 32 minutes since original publication. That’s what I get for not writing in three weeks. Apologies to the subscribers.

3 comments

  1. Let’s assume that the increased taxation of the rich is manifested by a flat tax system. Does that impact your response?

    Michael makes 20k/year while Bill makes 1 million/year. They are each taxed 15 percent. Michael pays $3,000 and Bill pays $150,000. Is this unfair? Does this truly discourage production? $750,000 still a vast improvement on $17,000 per year. Is Bill really going to give up that job of his and/or those investments because he has to pay the same percentage of his annual income as Michael does?

    Probably not. A universal flat tax system would greatly increase the state and federal tax revenues, helping to provide Michael and other poor or disabled earners valuable assistance; assistance in the form of healthcare, utilities, housing, and/or food, all at a subsidized or reduced cost. If that’s not high on your agenda, those extra dollars could go to other federal programs, whether you have a taste for education, defense or anything in between.

    Your average Joe isn’t resentful or bitter because the Bills of the world can afford a $20,000 “Residence” flight on Ethihad Airlines, they’re resentful because they have to pay a greater portion of their smaller slice to fund the country, and at the end of the day, it’s the tax-dodging wrinkled villains who have greater influence on what legislation and policies become average Joe’s reality.

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    1. 1. If I could, I would dump the entire federal tax system right now and replace it with your 15% flat tax proposal. I would do so ecstatically. I would run for office trumpeting this plan and give you full credit for it– better yet I would beg you to run for office, campaign for you, and get “Blonde for President 2024” (or whenever) tattooed all over my body if it would replace the entire federal tax system with a 15% flat tax right now.

      Does that affect your response?

      2. “[The poor] have to pay a greater portion of their smaller slice to fund the country, and at the end of the day, it’s the tax-dodging wrinkled villains who have greater influence on what legislation and policies become average Joe’s reality.”

      Federal income taxes in this country are progressive (i.e., the rich pay higher percentages). All federal taxes combined together are progressive. All federal taxes combined together and taking into account offsets such as welfare payments, subsidies, tax credits, etc. are progressive. The rich pay more dollars and higher percentages than the poor, period. I am not saying this to beat up on Joe Average. I am saying this because it is true, and if Joe Average is resentful because he thinks he pays a higher percentage than the rich do, he is wrong to be resentful.

      The “tax-dodging wrinkled villain” is the exception, not the rule. If they weren’t exceptions, the feds wouldn’t collect much tax revenue in the first place, would they?

      3. I have to come back to your flat tax thing. “Is Bill really going to give up that job of his and/or those investments because he has to pay the same percentage of his annual income as Michael does?” Do you really think the Bills ($1,000,000/yr) of the world pay lower tax rates than the Michaels ($20,000/yr) of the world?

      4) I’ve heard it said that taxes don’t impact the investment decisions of the wealthy (which is not quite what you claim, but your comment reminded me of it). Warren Buffett said something along these lines while proposing increases in the estate tax (which would be good for the life insurance industry; I wonder how much stock Warren has in life insurance companies). If this is so, then why do so many wrinkled villains spend so much time and influence dodging taxes? Why do they shift assets from jurisdiction to jurisdiction? Why do they buy expensive baubles with no intention of using or wearing them? Why do they hire tax attorneys?

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