Friday, October 5, 2012

Taxing Our Way to Fairness

One of my conservative friends recently wrote me this gem:
I guess it really boils down to one philosophical question:  'Is it better for everyone to be poor but equal or is it better for everyone to be wealthy even if some are wealthier than others?'
I think this pulls the whole issue into focus.  It's the difference between the ethos of the United States and that of the Soviet Union.  Of course, in the Soviet Union some people were more equal than others, and without free enterprise, wealth and privilege in the Soviet Union was a function of one's personal political power.  This is what happens when a government takes on enough power to "guarantee" an financial outcome regardless of people's economic behavior.

There has recently been a wealth of information on the Internet about   Notably, Walter Williams and Tom Sowell have been writing about why soak-the-rich tax hikes end up putting even more tax burden on the middle class.  If you are the same sort of ideological purist that Obama is, that doesn't matter (as he said to Charles Gibson).  Obama's demagoguery abstracts away important differences between risk-based income and guaranteed income and reduces it to strawman argument of a secretary who is paying "more" taxes than the CEO he is working for.

Making everyone equally unprivileged vs. creating abundant but unequal prosperity is a critical question in the economic debate.   Are you for the Reagan-Kennedy-Wilson notion that a "rising tide lifts all boats" or are you for the Obama-Carter notion that even if revenues go down and the middle class is left holding the bag, it is the fairness that is of ultimate importance?

Something that I've been thinking about lately is:  Is a state lottery unfair?  In the Obama sense, you truly didn't win through either hard work or intelligence (unless you cheated) but now you have all this money that the others don't.  Seems like the most fair thing would be to distribute the money among all those who contributed.  Wouldn't that be the most fair?  Are people playing primarily for the fun of it, or are they risking some money in order to have a greater income than that of their fellows?  Sounds unfair to me.  Who does that winner think he is?  Aren't the teachers and roadbuilders in his life that enabled him to buy that lottery ticket entitled to their fair share of that sweet cash?  As his Imperial Obamaness would say, "you didn't build that." 

However ...

However, that person having extra cash might turn into an increased demand for a luxury item that ends up in revenue that makes the luxury item more affordable.  (Nearly all the technology you take for granted was not nearly so affordable at one time.) That person might use the cash to invent something in his garage that ends up as a new business that employs thousands of people. So the lottery winner might blow the whole thing on mundane purchases, as the previously distributed money (before the lotto tickets were bought) would be spent on some coffee here, some shoelaces there; but it might result in something that creates jobs and new wealth.  Even all that money sitting in one account in one bank allows the bank to enable risk-taking and job creation.

Most of this capital formation isn't (and of course could never be)  due to lotteries, but is due to people saving wages and/or getting capital gains due to a combination of intelligence, hard work, and luck (contrary to Obama's assertion that capital formation is not primarily due to hard work or intelligence).

Let's go back to lotteries and say that if 50 people put a $20 bill into a hat for a bet and one walks away with $1,000.  Uncle Sam wants its slice of that money.  Maybe you'll report it, maybe you won't but Obama considers it unpatriotic for you to hold it back.  What if 50 people do the same only they decide it's all going to a friend for an emergency?  The Fed still wants its share.  What if 50 friends chip $1,000 dollars each to give a friend capital for a business venture?  This person needs all $50,000 for the venture that may or may not pay off, but the Fed better wants its share of that.  People can only redistribute their wealth (that the Fed has already taken a chunk out of) how they see fit as long as the government can stick its straw into the transaction so that they have money to buy votes.  You're free to do what you want with your money after Uncle Sam gets his due, you *^#%$@ ingrates.  Look at all that Papa does for you children.  

The government wants its share of the oats that you grow, a share of the oats you decide to eat, and if you see an increase in the value of your farmland from use of the oats that have passed through you, well, you owe Uncle Sam for that too, bub.  After all, you didn't build that farm on your own.  Your government did things for you at some point in your short life and you are indentured for the rest of your days. 

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