As the old saying goes: “The rich get richer and the poor get poorer.” That is the natural laissez-faire process of an “unconstrained” free-market economy — putting ME over WE.
July 27, 2009 — I have always been a Star Trek fan. Through its various incarnations, Star Trek has been a series of morality plays, both on TV and later in movie theaters. It highlighted moral issues, either implicitly (the “first interracial kiss” on TV), or explicitly, as with the Prime Directive.
One of the most memorable instances of a “moral teaching moment” in Star Trek was in the movie, The Wrath of Khan. Faced with imminent destruction after the Genesis Device went kaput and the Enterprise’s engines conked-out, Mr. Spock made a timely decision. He heroically sacrificed his own life in order to save the day. Later, he justified his choice to Captain Kirk as being perfectly logical when he said:
“The Needs of the Many Must Outweigh the Needs of the Few — or the One.”
The needs of the many vs. the needs of the few, or the one… heavy — the difference between self-interest and common-interest. At its essence, it’s the difference between civilization and anarchy.
My conservative friends often ask, one just did last night as a matter of fact, “Is it a crime for people to be rich?” What my friend was alluding to is the more basic question, I think, “Why should the rich have to pay higher taxes?”
Bear with me as I attempt to tie this basic question to the Star Trek example of common-interest. I used to wonder about this question myself before wiser people like my wife’s dad (we lovingly referred to him as Popo,) was able to help me understand.
First, to the “surface” question, “Is it a crime for people to be rich?” No, of course not. But how one gets rich, to my mind, is often criminal — even if they broke no laws in the process of accumulating their wealth. For example, the bankers and other senior executives on Wall Street pocketing millions each in salary and “retention” bonuses after what they did to our economy, and especially after their companies have accepted billions in TARP and bailout dollars from taxpayers. They have no shame!
It is a real crime to evade taxes, which some wealthy people (maybe many) do with bogus charitable contributions and offshore, secret savings accounts (see this business report from last year on the details). When they do, for whatever reason, they are depriving society/government of the revenues needed for essential programs like defense, homeland security, education and, community services. Perhaps, if more of the wealthy paid their legal shares, their tax rates would not have to be so high.
But to the “underlying” question, why higher income folks should have to pay taxes at a higher rate than most of us. It’s because wealth accumulates over time and does not re-circulate to help drive our economic engine. It is spending that fuels the economy, not saving, and the wealthy save at a much higher rate (called the marginal propensity to save) than do the poor and middle classes. Business investments, which often do come from the wealthy, do not lead economic recovery; they only follow it to take advantage of improving economic conditions.
Forget about “trickle-down” economics. Most serious economists today reject the idea entirely. One famous economist critical of this theory, John Kenneth Galbraith, summarized trickle-down theory as “horse and sparrow” economics: “if you feed enough oats to the horse, some will pass through to feed the sparrows.” And, before he became Vice-President under Reagan, George H.W. Bush had referred to this theory as “voodoo economics.”
So, as the old saying goes: “The rich get richer and the poor get poorer.” Or, another true-ism,”It takes money to make money.” That is the natural laissez-faire process of an “unconstrained” free-market economy.
According to news reports still on the Internet, Warren Buffett, the billionaire founder of the investment firm Berkshire Hathaway Inc., went to Washington back in 2007 to ask Congress not to cut his taxes. Buffett said the super-rich should be taxed more, not less. In particular, Buffett urged the Senate Finance Committee not to repeal the estate tax which was scheduled to come up for a vote. He told the committee that he recently compared how much he pays in taxes in terms of a percentage of his salary to what his employees pay. The percentage he came up with, owing to the tax credits and deductions the tax code affords him, was 18 percent compared to nearly 33 percent most of his staff pays.
“Frankly, Mr. Buffitt said, “an economy where my receptionist pays a lot higher tax rate than I do does not strike me as a just economy.” He challenged the elite members of the Forbes 400 list to do their own calculations and compare their tax rate with their receptionists, and then consider his challenge that the rich should pay more. None, to my knowledge, from research on the Internet, have chosen to take him up on his challenge.
“I see nothing wrong with those who have been blessed by this society to give a larger portion of their income to the society than somebody that’s working very, very hard to make ends meet,” Mr. Buffett said. And I think Mr. Buffett is correct.
Also important to consider, according to basic, introductory textbooks on macroeconomics, our progressive income tax system is an important economic stabilizer. More money in the hands of lower income individuals means more money spent — and more money being spent helps to keep long-range aggregate supply closer to “full production”, thus smoothing out the hills and valleys of normal business cycles.
So, the bottom line/economic truth is that we need a strong middle-class for economic stability, not a wealthier upper-class. Our progressive income tax, the minimum wage, and the so-called “death” tax, as conservatives are so fond of calling the inheritance tax, help to ensure middle-class strength (what President Obama referred to during his 2008 campaign when answering a question from Joe the plumber, using the phrase, “spreading the wealth around”). And that, my friends, is why the rich are expected to pay taxes at a higher rate.
Is this socialism? No, I don’t think so. It’s only logical. But many conservatives, like Joe the plumber, seem to think otherwise.
Feel free to comment, whether you agree or not.