Obama's Surprising Tax Logic

Obama's Surprising Tax Logic
July 20, 2012

S.T. Karnick

S.T. Karnick is director of research for The Heartland Institute. Before joining Heartland, he... (read full bio)

Like many of his other public pronouncements, President Obama's recent comment about self-made wealthy people -- "If you've been successful, you didn't get there on your own" -- is a truism that actually proves the opposite of what he suggests.
 
It's true, of course, that wealthy people use government services, as the president observes, and that little bit of truth lays the groundwork for a huge fallacy.  The notion that the rich should pay a higher tax rate than others does not follow logically from the observation that they use government services.  In fact, Obama's premise leads directly to the exact opposite conclusion.
 
Obama's premise is that we should view government as a service we should be expected to pay for:

If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you've got a business. you didn't build that. Somebody else made that happen. The Internet didn't get invented on its own. Government research created the Internet so that all the companies could make money off the Internet.
 
Hence, the president is arguing, wealthy people should be very willing to pay taxes because they received services in exchange.  That's true, but it's exceedingly obvious, and it is in no way limited to wealthy people.  If we get services, we should all be willing to pay for them.
 
Note that Obama is exclusively citing government services here, in addition to ignoring the largely woeful quality and inefficiency of those services.  This is decidedly not a discussion of all the fine people who voluntarily help successful people along the way.  No, it is about an ostensibly desperate need for more tax money, as indicated in the words preceding those quoted above, where the president calls for the forcible extraction of more money from the wealthy:

We've already made a trillion dollars' worth of cuts. We can make some more cuts in programs that don't work, and make government work more efficiently.... We can make another trillion or trillion-two, and what we then do is ask for the wealthy to pay a little bit more[.]
 
It's perfectly clear what the president is saying here: successful people use government services and should therefore be expected to pay for them.  But the conclusion he derives from this truism is patently false: given that the wealthy use the same services as everybody else, it stands to reason that the wealthy should only pay the exact same tax, in dollar amount (not percentage of income), as everybody else.  If we are paying for services rendered, everybody should be charged the same amount of tax, given that they generally consume the same amount of services (albeit a different mix of services for each individual).
 
Remember, the cost of providing the service is the same regardless of the future income of the person who gets it.  It doesn't cost more, for example, to protect a future rich person from invasion by foreign conquerors than it costs to protect a future poor person from same.  Similarly, the cost of policing to protect a house from robbers is the same as the cost of protecting a mansion from them (less for most mansions, in fact, because the owners of mansions tend to invest more in personal security measures).  The time for a teacher to go over math tables with a future billionaire and a future janitor costs the same for both students.  Every single example of government services the president cited costs the same regardless of who gets it.  (And if wealthy people are using political power to get an unfair share of government services, that is a matter of government corruption, not a justification for charging different prices for the same services and is in fact an argument against considering government a good and just service-provider.)
 
Thus, the president deftly switches terms, moving from talking about costs to claiming a disparity of benefits (without providing any evidence whatever for such a disparity, it should be noted) and shifting from past to present with equal slipperiness.  Yet even this claimed disparity of benefits is obviously not true.  If one person makes a huge fortune after using a particular road to drive to work, and another makes much less by standing beside that road and holding a sign stating, "Please help feed my two hungry children. God bless you," the government has done not one bit more for the first person than it did for the second, in building that road.  What has really happened is that the two individuals have done different things with a service that offered them identical benefits.  After all, the rich person could have stood beside the road with a sign, but he chose to do otherwise.  Clearly, the government has no right to charge the two individuals a different price for offering each one the exact same road-building and maintenance service.
 
Obama creates additional confusion with that shift from past to present, when he suggests that he wants people to pay now for services rendered in their childhood years.  Consider a hypothetical private-sector version of such a scheme.  If two people now aged thirty each drank four glasses of milk per day as children, and one worked hard and became a professional athlete but the other dropped out of school and became a drug-runner, should the milk company be allowed to charge the athlete two million dollars a year today for the childhood milk and give some of that money to the drug-runner?  That is exactly what the president's logic suggests.  A company in the private sector, of course, would be prosecuted by the government if it charged different people different prices for the same service (unless, of course, government tells it to do so, which it often does), and the idea of a company trying to get money today for services rendered decades ago is laughable.
 
In any event, the wealthy today already pay a much greater share of their income in taxes than others do, and the wealthy as a whole -- whatever group you want to choose, the top 1 percent, 5 percent, 10 percent, or 20 percent -- pay a much, much greater share of the total federal tax burden than those in the lower quintiles.  Thus, they are not only paying for those services, but paying a very high premium for them.  Yet by the president's own logic, they should be paying much less than they do now, or others should be paying much more, or both.
 
In sum, the president's argument is quite simple:
 1.Wealthy people are no different from anybody else in their use of government services.
 2.Therefore, they should be charged much, much more than anybody else for those services.
 
Although the president intended  to convey a very different thought with his premise of just payment for government services, and he expressed it explicitly as a call for increasingly progressive tax rates, the premise behind his call for higher taxes on successful people actually implies that true justice requires imposing equal taxes on all Americans.  That is a truly original and radical thought, but not one I imagine he'll want to pursue much farther.
 
S.T. Karnick is director of research for The Heartland Institute and editor of The American Culture.

 

S.T. Karnick

S.T. Karnick is director of research for The Heartland Institute. Before joining Heartland, he... (read full bio)