Running for the U.S. Senate in Massachusetts, Harvard professor and former Obama appointee Elizabeth Warren got her fellow leftists excited when she said, “There is nobody in this country who got rich on his own. Nobody” and added that “…part of the underlying social contract is you take a hunk of that and pay it forward for the next kid who comes along.”
She specifically pointed out that successful people depend on government-provided “public goods” such as roads, police, and education.
Given that the government is doing a terrible job with education, spending huge amounts of money for rather mediocre results, that was probably a foolish addition to her list. Regardless, she’s basically making a point that public goods benefit everybody. And she would like us to think that the “rich” benefit more than the rest of us, so they should pay more.
I had a couple of reactions when this story broke.
1. The rich already do pay a lot more, with the top 10 percent shouldering about 70 percent of the income tax burden. At what point would Ms. Warren be satisfied?
2. If you want a system where people pay proportionately more for public goods, isn’t that an argument for a simple and fair flat tax?
3. People get rich by providing value to the rest of us. Is it wise to subject those people to disproportionate tax penalties when that may discourage them from utilizing their talents?
4. If some people get rich illegitimately because of special handouts and subsidies from politicians, isn’t the solution to get rid of the bad programs rather than indiscriminately penalize all high-income households?
But I didn’t do a blog post, at least back when the story broke, because it seemed those points were rather obvious.
But Professor Russ Roberts of George Mason University wrote a column for yesterday’s Wall Street Journal that is so excellent that it must be shared. Here are some key passages from his WSJ column.
There’s much truth in Ms. Warren’s statement. But if government stuck to what it does fairly well—roads, police, fire and the courts; enforcing contracts that help businesses interact with their customers and other businesses—the federal government wouldn’t need to spend over $3.5 trillion a year, as it now does. And of course it’s state and local governments—and not Washington—that primarily fund police, fire and education, so it’s a bit strange to ask the rich to pay their fair share of federal income taxes because they enjoy police protection.
I especially like how Russ identified the federalism angle, noting that core public goods largely are provided by state and local governments, which makes Ms. Warren’s demand for higher tax rates from Washington even more absurd.
Unfortunately, as Russ notes, most federal spending goes for other purposes.
Much government spending supports activities that are ineffective or even harmful to the economy, often helping the politically powerful at the expense of the rest of us. Wouldn’t it be great for the federal government to stop federal export subsidies, propping up financial institutions, meddling in the education system, and trying to engineer the entire health system from the top down?
And a big part of the problem is that big chunks of the federal budget actually are handouts that benefit the rich.
If the feds stopped all that, Ms. Warren would have a stronger point. We could all feel some gratitude for government’s role in helping us live better lives. All of us, rich and poor, would look at government differently. …Ms. Warren is certainly correct that some rich people aren’t carrying their weight—those who live off the rest of us by twisting the rules of the game in their direction: the sugar farmers who benefit from sugar quotas, the corn farmers who benefit from ethanol subsidies and those sugar quotas, and especially the Wall Street executives who have managed to convince both parties that the survival of their firms, even when they make disastrous loans to each other, benefits the rest of us. …The symbiotic relationship between politicians and the super-rich is destructive of democracy and our economy. Let’s not make it worse. To close our deficit, let’s spend less rather than tax anyone more.
What a good idea: “…spend less rather than tax anyone more.” That’s what this fight is really all about.