Daily Archives: 5 October 2011

Progressives and Taxes

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Some of our friendly wealthy have been saying that they want to pay more taxes, and that because they’re willing to do so, everyone else who’s “rich” (i.e., individuals with $200k and couples with $250k of annual income) should be required to pony up, too—even though these other  folks aren’t rich: most in this income range are the small businesses that are the job engines that would run on all cylinders if government would only get out of the way.

Progressives are awfully willing to spend other people’s money; let’s see what would happen if they (voluntarily) spent their own, instead.  But before we get to that, let’s look at who actually gives what to, oh, say, charity.

According to the GivingUSA Foundation, Americans donated over $300 billion to charity in 2008, of which individual Americans gave nearly $230 billion.  This total breaks out rather interestingly.  According to Arthur Brooks, President of the American Enterprise Institute, as reported by him in a The Wall Street Journal column in January 2009, folks who considered themselves conservative or very conservative, donated between 3.5% and 4.5% of their income, while those who considered themselves liberal or very liberal donated between 1.2% and 1.5% of their income.  And these rates were pretty constant over all income levels—including the poor.  No wonder these skinflints want to spend everyone else’s money—they don’t want to have to spend any of their own.

Since Warren Buffet made his plea in the New York Times article at the link in the first paragraph above, he’s been invited to just write a big check to the US Treasury, if he thinks the government needs his money so badly.  Of course, he demurred (and, also of course, as The Wall Street Journal noted a few days after Buffet’s column in the NYT, he omitted mention that most of his income is in forms only the Buffet super-rich can access).  Other Progressives also have been invited to make donations to the US Treasury, but they deflect the suggestion, insisting it’s ridiculous to ask them just to write their own checks; individuals can’t do this alone; it has to be a collective thing.

Okay, let’s look at the Progressive collective and do some back-of-the-envelope calculations.  According to a Gallup poll in 2010, about 31% of all American registered voters were members of the Democratic Party.  According to a Pew poll in the same year, about 47% of registered voters were members of the Democratic Party, or leaning that way (one supposes something like a registered Independent with Democratic Party tendencies).  For this calculation, I’ll use 40% Democrats to sort of cut a middle ground between the two polls and pick up some of those leaners.  And because the round number makes the arithmetic a bit easier.

For 2010, the Federal government collected some $1.1 trillion in personal income taxes from all individual taxpayers.  Actually, this estimate bounces around a bit, depending on whether we use Census Bureau aggregations, revenue collections as a per cent of GDP, and so on, but we’ll use this figure; it’s pretty much in the middle of the range, which isn’t all that broad.

If we naively assume that all Americans, registered voter, leaner, or otherwise, sort out roughly along the lines of those two polls, we can use 40% of all Americans as Democrat in some way, and these 40% of Americans paid around $440 billion of those $1.1 trillion of taxes.

Progressives are all quite dedicated to our country’s welfare, and they want our Federal government to have more money so our country can be even better off.  So, what if they all chipped in a bit more for Uncle Sam’s Treasury department, in the form of a donation to Treasury?  If they donated, over and above their ordinary tax bill, just an amount equal to 10% of that tax bill, they’d donate in their aggregate an additional $44 billion to the Feds.  That’s a drop in the ocean of the Obama Debt, but that ain’t walkin’ around money, either.  That’s still serious change.  And 40% of Americans aren’t the onesies and twosies that Progressives insist would defeat the purpose of these individual donations.  Except in the eyes of these Progressives: since 40% isn’t everybody, it is just trivial individual effort.

On the other hand, they aren’t far wrong, either, about the triviality of their donations.  If these Progressives gave to Treasury as generously as they do to charity, they’d only be donating about $6.6 billion.  And given the spread between current revenue and current Federal spending, that would be an empty gesture.

Greed and Envy

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Caution: long post….

Greed is wanting more than we have, not because we need more, but simply because we’re dissatisfied with what we have.

While Dante defined envy as “a desire to deprive other men of theirs,” modern usage stems from another meaning: a painful, even resentful, knowledge that someone else has something that we lack, and we want it, too.

But “Greed is good,” Gordon Gecko said, and he wasn’t far wrong.  More accurately, we should never underestimate the power of greed to do good in the world.  Envy is a part of this, in a way; it’s another aspect of greed: it can give a focus to what it is we want that’s more than what we have: sometimes we want that specific thing that he has, if only because he has it already.  Adam Smith understood this; these are his invisible hand.

To greatly oversimplify things, here’s how that invisible hand works.

A man wants something he doesn’t have; he may not be entirely clear on what it is, but he can describe his shortfall at least to some extent.  Another man offers to develop and then make a widget which he says will generally satisfy the first man’s shortfall.  He’ll then sell it to the first man if he will pay for the labor, materials, and a little extra for a profit.  The two agree on the terms of the transaction, and in short order, one man has a widget he didn’t have before, and the other man has some money he didn’t have before.

Another man sees the first man’s widget and tells the second man he wants one like that.  A conversation occurs, and in short order the third man has a widget, too, and the second man has a bit more money.

Soon a fourth man approaches the second and says that if the second will make a bunch of widgets, the fourth man will buy them all and resell them elsewhere.  Now lots of people have widgets, the widget maker has much more money, and a seller is making money.

A fifth man comes along and says this to all those who’ve bought widgets: “All your widgets look alike.  I have a fine selection of gee-gaws that you each can add to your widget to make it a truly unique possession, which no one else has.”  And others see the gussied up widgets and want—and conclude transactions to obtain—widgets that are just like this man’s, or just like that man’s.

A sixth man says he can improve on the widget: he can make a Widget DeLuxe, or a wodget, either of which is better than even a gussied-up widget.  And so on.

All of those original players—buyers, developers, manufacturers, sellers—are better off for these free exchanges: each has, as a result of the exchanges, something of value to him that he didn’t have before, and he got it at a price he considered worth paying—whether in labor or in money—in order to get that thing.  On top of that, additional jobs were created—additional sellers; manufacturer helpers; after-market developers, manufacturers, and sellers—and these new job holders are all better off than they were before: they have jobs, now, and the wherewithal to buy widgets, if they wish.

In all of this economic growth, in all of this wealth increase, greed and envy played their roles in driving the system.  Every participant acted on his own self-interest, every participant did what he did to satisfy himself alone.  Yet as a result of the interactions of these individual self-interests, these individual greeds and envies, everyone in the system became better off.

It’s true that the wealth distribution was uneven.  In this simple scenario, the original widget maker seems to have the largest gain, and the sellers seem to have the next largest.  But even the meanest widget buyer is better off now than he was before, and he’s better off in a way that would have been impossible without this commerce: he has a widget he couldn’t even contemplate before because it didn’t exist before, and he has options for a better widget or a wodget, as well.

Notice a critical aspect here, though.  This system was a free market, within which participants to an exchange were able to come together and reach their agreements along parameters that were entirely agreeable to them, and to them alone.  No one was forced into an exchange he didn’t want, no one was barred from an exchange in which he wanted to participate, and each one was free to act solely on his own desires.

Greed and envy are two-edged swords, though, and they certainly can overwhelm a free market.  There is a role for government intervention, and it is to protect all of us from the plainly rapacious.  But that intervention must work to preserve free market mechanisms—the very mechanisms that channel our venalities and convert them to accidental strengths for our common good. This kind of government intervention must enforce contracts, and it must ensure transparency so that every participant can readily understand what it is he is getting—or selling—when he enters that market for his own selfish purposes.  But it must leave each participant free to act in his own self-interest.

When the market isn’t free, when the market is centrally controlled—even when the market is nominally free, but government intervenes too much—the capacity of commerce to turn greed and envy to our common betterment is overwhelmed.  When government intervention favors this or that selected group, for instance—one group didn’t get as wealthy as another, let’s say—then our greed and envy are simply channeled away from functional (if accidental) cooperation for the common good toward simple, resentful, isolated greed and envy: “Why do they get special treatment?  Why can’t I, too?”  Members of the other groups—whether government-designated groups or self-styled (now that government has set a precedent of special groups for special treatment)—stop working to gain the wherewithal to buy, they stop working to produce.  These groups insist, instead, that government intervene in their favor, too.  In short order, the market is no longer producing, and wealth and well-being deteriorate.

Thus, government intervention too easily suppresses the essential cooperative nature that is men and women acting in our own self-interest—including our own greed and envy—to arrive at exchanges voluntarily between those of us who want and those of us who have, or can produce, or can create.  Intervention cannot look to control the forces of the free market, to control by government fiat our greed and envy, without destroying that free market.

“If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary,” James Madison wrote.  But we’re not, and they don’t; we must limit government’s market interventions, as we must government’s power generally.  Greed and envy are part of our nature, but only a free market has the capability of channeling those base parts to our collective benefit.