Business

The rich aren't made of money

'The question is: Should we be giving an extra $120 billion to people in the top 1%?"

So asked Gene Sperling, Hillary Clinton's chief economic advisor, at a recent National Press Club panel discussion. Translation: It's the government's money, and anything left over after Uncle Sam picks your pockets is a "gift."

Indeed, to hear leading Democrats talk about the "richest 1%" -- a diverse cohort of investors, managers, entrepreneurs and, to be sure, some fat-cat heirs -- one gets the impression that wealthy Americans are a natural resource, to be pumped for as much cash as we need.

Further, the Democrats don't think that well will ever run dry. "I no more believe that the hedge-fund managers are going to quit working at billion-dollar hedge funds because tax rates go up 5% than Alex Rodriguez will quit playing baseball because they put in a salary cap," Austan Goolsbee, Barack Obama's economics guru, said last Friday.

This sort of thing used to be a staple of the hard left. "Look at the wealth of America, weigh its resources, feel its power," wrote the Nation's editors back in 1988, endorsing presidential candidate Jesse Jackson's extravagant public spending plan. "There's enough money in this country to do everything Jackson asks, and more."

But now this vision simply defines liberal economics. John Edwards' unending campaign for president is based on the idea that there are two Americas and that everyone will be better off when un-rich America mugs rich America. According to Democrats, it's greedy to want to keep your own money, but it's "justice" to demand someone else's.

Michael Boskin, Rudy Giuliani's economic advisor, said, "There is no -- let me repeat -- no example in the last quarter-century of a large, complex economy that has been successful with high taxes." He adds, "The Western Europeans have seen their standards of living decline by 30% in a little more than a generation because of their high taxes." The U.S., meanwhile, has outperformed the competition over the last quarter of a century.

I'm with Boskin. But I think there's a more pressing issue. What does it do to a democracy when people see government as something only other people should pay for?

Let's take seriously for a moment the notion that rich people are an inexhaustible army of Energizer bunnies that just keep going and going, no matter what taxes you throw in their path. You can see where Democrats get this idea, after all. The top 1% of wage earners already provide nearly 40% of federal income tax revenues. And the bottom half of taxpayers contribute only about 3%.

Taxes are a necessary evil. But their silver lining is that they foster a sense of accountability and reciprocity between the taxpayer and the tax collector. Indeed, democracy is usually born from this relationship. Widening prosperity brings a rising middle class, which in turn demands the rule of law, incorrupt bureaucracies and political representation in exchange for its hard-earned money. You might recall the phrase "no taxation without representation."

The one great exception is what development experts call the "oil curse." In countries "blessed" with oil wealth or similar resources, the relationship between the government and the governed gets distorted. These "trust-fund states" (a term coined by Newsweek International editor and columnist Fareed Zakaria) don't need taxes, so their rulers worry little about representation and accountability, opting instead for paternalism or authoritarianism. Worse, the people are less inclined to see government as their expensive servant and more as a source for goodies.

Today, our politics seems to be suffering from a "rich people curse." We treat the rich like a constantly regenerating piñata, as if they will never change their behavior no matter how many times they get whacked by taxes. And we think everyone can live well off the goodies that will fall to the ground forever.

Of course, typical wage earners pay plenty of taxes, but not in ways that foster a sense of reciprocity with the government in Washington. Their biggest federal payment is the regressive payroll tax intended to fund Social Security and Medicare. And even though as a matter of accounting these payments are no different from any other taxes, they're sold simply as retirement and health insurance programs.

Meanwhile, Democrats keep telling the bottom 95% of taxpayers that all of America's problems will be solved if only the rich people would pay "their fair share" of income taxes. Not only is this patently untrue and a siren song toward a welfare state, it amounts to covetousness as fiscal policy.

I don't know what the best tax rates are, for rich or poor.

But I'm pretty sure that it's unhealthy for a democracy when the majority of citizens don't see government as a service they're reluctantly paying for but as an extortionist that cuts them in for a share of the loot.

jgoldberg@latimescolumnists.com

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