Home / Blog / Article


August 23 2011

Why Not to Soak the Rich

Hadley Heath

Today in the Wall Street Journal, former American Express CEO Harvey Golub offers a response to President Obama and Warren Buffett, who advocate raising taxes on the wealthy.  Golub writes:

What gets me most upset is two other things about this argument: the unfair way taxes are collected, and the violation of the implicit social contract between me and my government that my taxes will be spent-effectively and efficiently-on purposes that support the general needs of the country.

Golub reviews some important reasons the government shouldn't raise taxes on the wealthy, but I don't think he tells the full story.

First he, like Buffett, appeals to fairness.  Golub would point out that high earners contribute the lion's share of income tax revenues. This is true, and I would also point out that the breaks, havens, and loopholes in our tax system that make our tax collection methods less fair.  Some rich people - including Warren Buffett - know how to arrange their money in their businesses, their assets, and their foundations so that they minimize their taxes.  Clearly, we need tax reform, and simplifying our tax code - without raising tax rates - would a good first step toward fairness.

Golub's second thought is about the social contract between taxpayers and the government.  I remember telling my dad once when I was in college that I thought I had unfairly benefitted from our government.  I attended public school for K-12, and then attended a state school for college, and I hadn't paid enough in taxes to deserve those things.  I was concerned that someone else was getting ripped off.  His response was not to worry, that throughout his working career he'd paid enough taxes for everyone in our family to get a public education, and for our use of the roads, and for our protection by law enforcement, and for much, much more.  Buffett's one good point in his New York Times oped was that Americans are blessed to live in a safe country, and we cannot show enough gratitude to America's soldiers for defending us.  Can you put a price on that kind of blessing?

Of course you cannot put a price on freedom or security, but that's not Golub's point.  His (valid) point is that today our government is spending our money on things that don't serve the purpose of maintaining freedom, or security, or even the general welfare.  Because some Americans wrongly equate paying more taxes with giving to a worthy or humanitarian cause, they might esteem Buffett for generously advocating that he and his class pay more taxes.  But Golub knows that government doesn't perform its functions efficiently, especially when it comes to social aid.  As Milton Friedman said (and this as in the 1970's!), "Suppose I divide the total amount of money spent on these [welfare] programs by the number of people labeled poor... If that [money] were really going to the poor, they'd be among the rich."  We know that the same is true today, that government attempts to do too much beyond its proper role, and ends up doing all of it inefficiently.

One point Golub doesn't make, which I think is perhaps the strongest argument against soaking the rich, is this: economic growth.  The alternative to putting more money into government is keeping more money in the private sector.  What do rich people do with their money?  They could spend it (which Keynesians should like, because this should stimulate the economy), they could invest it (in businesses that create jobs for the middle and lower classes) or they could even give it away to private charity! 

Rich people aren't perfect, and certainly there are some rich people who are irresponsible and make bad choices with their money.  But at least in most cases, they are being irresponsible with their own money, not taxpayer money. 

Conversely, it is when people make rational decisions, incentivized by the profit motive in free-market capitalism, that we see economic growth and innovation.  That makes us all richer, and that's all right by me.

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
Follow us