Monday, October 10, 2011

Still trying to make sense of the Elizabeth Warren quote about successful businesses and taxes

I've already blogged about how I don't see how the phenomenally popular quote by Elizabeth Warren about business, government, and taxes makes sense.

If you're not familiar with the quote, I recommend reading it in my older blog post before reading the rest of this post. The gist is that since a successful businessperson was only able to achieve all their success thanks to government services, they should "pay forward" — that is, pay taxes in the future.

To be clear, I do agree that businesses and the rich should pay taxes. I even agree that the rich should pay a higher proportion of their income in taxes than other people. But I take issue with the idea that by observing that the rich have benefited from government services, you've somehow made an argument for left/liberal economic policies, as opposed to any other economic policies — centrist, conservative, libertarian, whatever.

Along the same lines, Alex Knepper says:

Taxes must exist for something, of course — and it seems that the best examples of successful government programs that Warren can come up with are the left’s typical trifecta of examples — schools, roads, and law enforcement. Again for the sake of argument, let’s agree with her that these are shining examples of money well-spent — and that because of this, they merit even more spending. Her point still goes nowhere: these projects don’t actually cost all that much money. The majority of federal money (and we will consider federal spending here, since Warren is running to be a senator) is spent on entitlement programs, national defense, homeland security, and health care. Education and infrastructure don’t account for a lot. If schools and infrastructure are what Warren thinks that businessmen have to be grateful for, then they still are left with many legitimate gripes about their money being misspent.
But let's look at two liberal editorials that endorse Warren's statement at length, and see if they shed any light on this.

First, the Editors of the New Republic have a piece called a "moral defense" of taxes. TNR writes:
Nobody questions whether society can require people to serve on a jury or, in times of war, to enlist in the military. So why do we question whether society can require people to pay for the government whose services, and protection, they enjoy?
Before I go into the merits of TNR's editorial, I have to point out that the Editors are making a statement that's simply false. The military draft is wildly unpopular. It hasn't been used in America since the Vietnam War, when it was considered an outrage. The draft is so unpopular that even a staunch conservative like Jonah Goldberg says (as I've blogged):
I have a problem with compulsory military service if compulsory military service isn't needed at a time of war. . . . You know, the draft is a bad thing. . . . The draft is . . . an incredible . . . it is very comparable to slavery. And in some ways, it's worse than slavery, insofar as you're forcing people to kill other people and be killed. Now, it's an evil, but it's a necessary evil sometimes.
By contrast, almost no one opposes taxation itself. Michele Bachmann had to admit as much in the last presidential debate, even after making this forceful statement:
You should get to keep every dollar that you earn. That's your money; that's not the government's money. That's the whole point. Barack Obama seems to think that when we earn money, it belongs to him and we're lucky just to keep a little bit of it. I don't think that at all. I think when people make money, it's their money.
After all that, she gave this obligatory clarification:
Obviously, we have to give money back to the government so that we can run the government.
In other words, even someone who comes across as vehemently anti-tax has to concede that we need to have some taxes in order to keep the government running (with the negligible exception of anarchists).

The basic services Warren was describing (roads, police, courts to enforce contracts, etc.) require very little taxation relative to the status quo. So, even if we only had taxation necessary to provide all those services, almost no one would be complaining that taxes are too high. (Even fairly extreme libertarians want government to be small, not nonexistent.) By contrast, most people find military conscription disturbing and abhorrent — only to be used in dire circumstances.

Onto the merits of TNR's editorial. The Editors say:
The moral case for taxation rests on two separate, but related, principles. The first is distributional. History teaches us that capitalism is an excellent economic system for generating wealth. But history also teaches us that capitalism will create losers as well as winners, often because of forces beyond any individual’s control. . . . [P]overty, like affluence, becomes its own sort of inheritance.

A civilized society recognizes this problem and vows to mitigate it. If capitalism does not offer everybody at least some realistic hope of upward mobility, it cannot survive. Here in the United States, a part of our solution has been to enact government programs that offer the needy minimal allotments of sustenance (food stamps) and shelter (housing choice vouchers), that provide the less affluent with cash (Temporary Assistance for Needy Families) and college tuition (Pell Grants), and that guarantee all citizens pensions (Social Security) and health insurance (Medicare, Medicaid, and the Affordable Care Act). These programs cost money. And the money has to come from somewhere.

The second reason we need taxes isn’t about the least fortunate; it’s about public goods. You’ll frequently hear conservatives argue that taking money from people, particularly successful people, is unfair because they, not the government, earned that money. But that’s not quite right, for reasons Warren explained very well in her monologue. Behind every successful individual is a set of public investments that past generations made. Could Bill Gates have made his fortune without government-financed education and technology? Could Sam Walton’s stores have spread across the country without government-sponsored roads on which goods and customers travel? . . .

The importance of public goods is not simply an argument for progressive taxation—that is, asking people who’ve been extremely successful to support things like roads and education, from which they and their businesses benefit. It’s also an argument for taxation in general. The rich should pay more, yes, but everybody who can pay something toward the cost of financing government should do so.
Now, the observation about public education doesn't even make an obvious case for taxing people at a level sufficient to pay for public schools. While I'm sure many rich businesspersons did attend public school, it remains an open question how much to emphasize public as opposed to private schools. If some of those rich people attribute their success to public education, they can go ahead and make that argument — fine. But other rich people might feel they would have been at least as successful if they had attended private schools. Still other rich people might say their private education shows that we should be focusing more on private schools. (I realize that you might not care much about what kind of education allows 1% of the population to become rich — but I'm operating under Warren's own premise that we should shape policy based on looking at what has benefited the rich.)

As for TNR's support of progressive taxation, I still don't see how that follows from all this discussion of how someone who runs a profitable factory couldn't have done it without police to stop the factory from being burgled or their employees from being murdered! Whether revenues should come from progressive or flat taxes — or, high or low corporate taxes — are separate issues from the observations about the successful factory. The New Republic's Editors believe that the tax rates should be progressive, and they may be exactly right about that. As I said, I happen to agree with them. But this isn't the same issue as whether to raise enough tax revenues to fund the police and courts.

By the same token, I happen to agree with TNR that government should provide some safety net for our least fortunate citizens. But I don't think even the editorial itself is arguing that this is explained by Warren's discussion of a businessperson who enjoys public services like the police to keep their factory safe.

It's also worth stepping back and asking what people like Warren and TNR are trying to accomplish from all this. The undertone of their statements is that conservatives might become more liberal if only they'd think more clearly about the importance of government in a capitalist society (especially the federal government, since Warren is running for the U.S. Senate). Hence, TNR claims to be making a "moral case" against conservatives who "argue that taking money from people, particularly successful people, is unfair because they, not the government, earned that money."

But just look back at Michele Bachmann's statement during the debate. The conservatives who say this kind of thing certainly are upset about taxes — but not all taxes. They want people (including the rich, of course) to be taxed enough to raise money for the things they like, including the police and the military. For many conservatives, this even includes public schools and Social Security and Medicare. At the same time, they would like to see massive federal tax cuts, because they believe the federal government wastes a lot of money on programs that either do more harm than good, or might even do a little good but not enough to be worth all the money they cost. These conservatives may be right or wrong, but I don't think their mistake is in how they think about the very nature of taxation itself. Everyone is for taxation — to pay for the things they like. And everyone is opposed to taxation — when it pays for things they don't like.

Now, onto the other editorial I mentioned: E.J. Dionne wrote this bizarre piece. I have less to say about this one, because almost none of it is spent actually making the case for what Warren said. 90% of it consists of Dionne (gleefully?) taking jabs at his Washington Post colleague George Will for writing a poorly reasoned editorial against Warren. (Dionne is right about that: Will's column was weak.)

When Dionne finally gets around to making the "proper case for liberalism" — which he interestingly admits "does not happen enough" — here's all he says:
Liberals believe that the wealthy should pay more in taxes than “the rest of us” because the well-off have benefited the most from our social arrangements. This has nothing to do with treating citizens as if they were cows incapable of self-government. As for the regulatory state, our free and fully competent citizens have long endorsed a role for government in protecting consumers from dangerous products, including tainted beef.
As I said in my earlier blog post, even if you agree with this, you're in agreement with some people who are pretty far right. Even supporters of a flat income tax agree that the wealthy should pay more in taxes than the rest of us. Of course, he would probably say: "No, that's not what I meant! I mean the rich should pay a higher percentage of their income." I happen to agree, but not necessarily because "the well-off have benefited the most from our social arrangements." I'm for progressive taxation because we need to get the revenue from somewhere, and while taxing anyone is going to cause pain, it'll hurt the rich the least because they have more money to spare. If this means I end up agreeing with Dionne or Warren on that issue, I'm fine with that. But even if this policy, or other left-leaning policies, are good ideas, I don't know see how Warren or Dionne or The New Republic have given the real reasons why they're good ideas.


Ron said...

The language of "benefited most from our social arrangements" could be construed ominously....'We let you make the money you made...and you didn't pay what we think you 'should' maybe we'll take that away!'

Plus, what if there were some magically way the rich could pay into a private system for everything like roads, courts, etc, and then said, 'hey I've paid for're on your own'? Would Warren accept that?

You're quite right that the left is going very quickly from the general to the specific.

Meade said...

There is nobody in this country who got where he is on his own. Nobody. You landed a job — good for you!

But I want to be clear. You get to your job on the roads and buses and subways the rest of us paid for. The rest of us paid to educate you. You were safe in your schools and workplaces because of police forces and fire forces and military forces that the rest of us paid for. You didn’t have to worry that maurauding bands would come and mug you, and you didn't have to hire a body guard, because of the work the rest of us did. Now look, you got an education, a job, and built a career and it turned into something terrific, or a great idea — God bless. Keep a big hunk* of it.

But part of the underlying social contract* is you take a hunk* of that, buy a mortgage, join the PTA, and raise a family - spend a large hunk* of your earnings and your time doing a terrific job* of raising the next generation of taxpayers.

* to be defined, after they become part of the federal government, by people like Elizabeth Warren who hope to become big hunks in the federal government.

Now look, Elizabeth, you'll get that government position and turn it into something terrific - some big idea — good for you and God bless! Keep a big hunk of your power.

But part of the underlying truth is that you got that power by appealing to two things in your voters -- envy and resentment.