Wednesday, July 10, 2013

Benefiting disproportionately from the common wealth

Location: Salt Lake City, UT, USA
Something that has been bandied around a lot for the past decade or so is this idea of 'job creators'.  This typically is used as a political term to describe an economic strategy that came about in the late 70's and early 80's, the idea of 'trickle down economics'.  This is the idea that the wealthy should be allowed to keep much more of their money than previously they had, the justification being that they would take all that money and invest it in things that would create jobs and raise the standard of living for everyone.

At first thought, this may seem like a logical strategy.  But it simply is a pipe-dream, as history has shown.  In fact, since that time the rich have gotten richer, and the middle class has stagnated, a fact that is clearly seen when one looks at the statistics over the last 30 or so years.  The reality is that the prosperity of our nation is fueled by the consumption of the middle class, and if the middle class incomes do not keep up with inflation, our economy cannot grow.  It can appear to grow, as we have now where so much wealth is created on paper out of thin air, but a stagnant middle class is a stagnant economy, no matter how rich the upper 0.1% appears on paper.  Not to say that means that the rich are all just as poor as us, far from it, this paper inflated wealth is spread nicely around among us all, many of us hold it through retirement accounts.

The struggle between income taxes is one that has been in the news recently, and I will not rehash it further, but instead I want to draw attention back to a tax issue which almost always is overlooked, the estate tax.  Opponents of this tax will refer to it as the death tax, but in honesty this would be similar to referring to a will as "the dead guys demands."  The reality is that the tax is leveled against the remaining estate of the most wealthy in our society.  These are imposed against estates valued at over 5 million dollars, more than twice what most people would make in their lifetimes.  This is important because most rational people understand the arguments against the estate tax, as they are not irrational arguments.

Why should someone be penalized because they are successful?  That is what all rational arguments boil down to on this issue, and it is a valid point.  I have heard many people attempt to respond to this question, and in my opinion, all but one group has failed to make an argument that acknowledged the moral question raised.  To understand why this argument is incorrect, I must show that the estate tax is not a penalization, but a repayment of a debt to the common wealth that we all create, own, and are responsible for.

I steal a statement from Bill Gates Sr. (yes, the father of the richest man on earth, at the moment), and assert that the rich deserve to pay disproportionately in taxes because the rich have benefited disproportionately from the common wealth.  What Mr. Gates is talking about here is important because it hints at one of the other true source of the wealth which we are capable of creating, the public infrastructure.

I have heard others talk about this.  Obama tried to point it out in a speech and was accused of being anti-business and saying business owners didn't work for what they have.  I am not a fan of Obama, and he has done his own defense against this, but his original point is quite valid.  He said that along with all the hard work that individuals put into their business, there is also work put in by the community.  The most obvious is the public system of roads and transportation that brings goods and supplied, as well as customers.  Obama talks about police, and firemen who protect businesses, funded by the public common wealth held by all of us.

It goes much deeper than that though.  We have a patent system which was created by and for all of us.  This patent system has been an enormous source of wealth for countless businesses, along with trademark and copyright law.  When businesses have their patents, written works, or trademarks stolen, they enjoy the services of another public sector entity, the courts.  When businesses seek to hire new talent, they do not have to invest significant sums in extensive ground-up training systems because they can walk over to the publicly funded schools in their area and find people trained in a myriad of skills which they require.

This is how those who are able to amass large amounts of money are benefiting from the common holdings of we the people, the common wealth.  This is why the rich are benefiting disproportional to the public.  They live in a society which has built an infrastructure that is the greatest generator of wealth in the modern world.  The wealthy shoulder a moral responsibility to return in proportion to their benefit to the system created by others to give them that opportunity.  This is indeed the moral imperative.  Some of the wealthy will return disproportionately to society if left to their own devices, however, this is by no means the norm.  Anyone who looks at the history of wealth distribution can see that this repayment to society cannot be voluntary.

Through most of our nations history of taxation the wealthy have been taxed at a much higher rate than the middle and lower classes.  Most of the time this meant effective tax rates of 60-80%, though tax rates on the top tier of the rich rose as high as 96%.  Tax rates now are effectively in the 12-15% range for the richest of Americans, and I believe my effective rate last year (which included a one time credit for money I spent on tuition) was 35%, I look forward to an effective rate closer to 40% next year.  I make almost exactly the median income at my current job.  If I pay taxes and don't spend a single penny of what I make, it would take me 142 years to make the 5 million dollars required to have to pay the estate tax.

If you look at where true economic prosperity comes from, the middle class consumers and the public infrastructure created through taxes, it becomes clear why the wealthy should pay proportionally more in taxes than the rest of the population.  I think the estate tax is a perfect tool in this quest because it ensures that the wealthy return to the system for the benefit they have received.  I think that humans are greedy beings, and that the estate tax helps to encourage people to create amazing things by allowing them to employ their money in their choice of pursuits, to hold their reward, but that at some point a portion of that accumulated wealth must be returned to the public which is charged with creating the infrastructure to ensure that future generations are allowed to enjoy the same prosperity that we can.

If humans were not humans and the world was perfect, perhaps this idea of trickle down economics would be viable, but the reality is that it is the job of government to structure markets in such a way as to encourage positive outcomes and discourage negative outcomes, and this idea of completely unregulated economies and markets is a daydream that is doing irrevocable harm to our society.

As always (and dammit, will someone someday take me up on this), tell me I'm wrong!  Or perhaps why I am right?

And here area few videos that inspired my post today:

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