Just Encouragement to Industry and Enterprise

Aug 26, 2008 

 

David Lewis Schaefer 

 

During the Saddleback debate two weeks ago, John McCain, asked by moderator Rick Warren to define who the “rich” are, offered a response that has elicited mockery from some on the left when he (half-jokingly) said, “Someone who earns $5 million.” He followed up that response by saying that the question was really irrelevant, since he doesn’t want to raise anyone’s taxes, but would rather see all Americans grow rich. By contrast Barack Obama defined the rich more liberally, suggesting that anyone earning $150,000, or perhaps $250,000, belongs in that category, and hence ought to be paying higher taxes in the name of fairness. At the same time he has proposed a system of “refundable” tax credits, so that those who paid less in taxes than the amount of the credit will receive a check to make up the difference. (Obama’s rival for the Democratic Presidential nomination, Hillary Clinton, similarly called at the beginning of her failed campaign for a “new progressive vision” to combat income inequality.)

The contrast between today’s liberals and conservatives on the issue of economic inequality and fairness covers much wider ground than the question of who the rich are. Most importantly, it concerns the very purpose of a tax system, and the criteria of fairness. Liberals point to the persistence and even increase of income inequalities in recent decades as signs of a lack of fairness in American society, and hence demand that taxes on wealthier people be raised to reduce that gap. By contrast, conservatives note that (as Wiliam McGurn of the Wall Street Journal recently observed) the top 1 percent of American taxpayers already pay 40 percent of all income taxes, the highest level in forty years, while the upper 10 percent pay 71 percent of taxes. The very notion of “progressive” taxation rests on a questionable moral foundation, as liberal University of Chicago law professors Harry Kalven and Walter Blum pointed out in their now-neglected classic The Uneasy Case for Progressive Taxation, published in 1953: Why should some individuals be taxed at a higher rate than others just because they earned a greater total sum of income? (Even at a flat rate, the highest earners are already contributing more per capita to the federal treasury than others do.) But even if one were to accept some level of gradation, McGurn’s figures surely suggest that it has gone too far—especially since President Bush’s tax cuts removed a substantial share of Americans (the lowest-income earners) from having to pay federal taxes at all.

The most striking aspect of today’s liberal position emerges when spokesmen like Obama confront the possibility that setting taxes at a lower rate might actually increase government revenues—and nonetheless hold out (as Obama did in a conversation with ABC’s Charles Gibson) for a higher rate in the name of fairness. Similarly, back in 2006, Lawrence Mishel, president of the Economic Policy Institute, a left-leaning think tank, took some Democratic strategists to task for not addressing the issue of inequality more forthrightly, tellingly remarking, “I think it’s a distraction [from the actual situation of middle-class Americans] to debate whether we have a higher standard of living now [compared to 1979] or not. We probably do. But so what? Middle-class Americans are not getting their fair share” (because the rich had gained even more over the same period of time).

How is one to decide between these opposing conceptions of fairness? To begin with, we might ask about how far that notion properly applies in comparing the income and wealth of discrete individuals. Implicit in the view of today’s self-styled liberals is the notion that any person’s wealth is ultimately the product of an overall economic “system”—so if he is receiving what looks like disproportionate rewards, there is something wrong with the system. But surely, under a system that allows freedom of enterprise (misleadingly labeled a “capitalist” one, as if all economic regimes didn’t require capital), an individual’s earnings typically have some connection with his own efforts (including the effort he put in to acquiring the necessary skills in the first place). As the late Harvard philosophy professor Robert Nozick put it, implicit in the redistributionist view is the misleading assumption that wealth somehow falls “like manna from heaven,” rather than being produced by individual human beings.

Of course, under any economic system, there is no necessary correlation between an individual’s efforts and his economic rewards. Economic success is influenced by native talent, schooling, the familial and neighborhood environment in which one grew up, and just plain luck. Some people, moreover, have the good fortune to receive substantial gifts from their parents when they launch their careers, or inheritances later on. For all these reasons, there has long been a broad consensus in America, as well as in other prosperous commercial republics, that government should expend considerable funds to broaden the opportunities available to poorer people—most obviously through free public education—as well as to soften the impact of economic duress on them (through free health care for those who cannot afford it, food and housing assistance, unemployment compensation, and so on).

It is a big leap, however, from the notion that government should try to help alleviate the condition of the poor, to the belief that all income earned by individuals somehow forms a collective asset, a “fair” share of which (the amount to be fixed by the government) “belongs” to all classes of the population—so that the tax system should be used not only to finance needed public services, but to reduce the inequalities in people’s wealth and income just because they seem “unfair.” This was the doctrine taught by the late, highly influential Harvard philosophy professor John Rawls, notably in his book A Theory of Justice. But as Kalven and Blum wrote, “whether the argument for redistributing income is put in terms of increasing the general welfare or of redressing the injustice of the existing rewards, it is always precariously close to being rested simply on envy.” (Remarkably, Rawls even espoused a doctrine of what he called “excusable envy,” encouraging people to feel envy whenever levels of inequality exceeded a particular--and unspecified--level, on the ground that envy would be “rational” in such cases, as it would lead to a demand for redistribution.)

It would appear more fitting to recall the thought expressed by Abraham Lincoln in his 1864 reply to a letter of support for the Union cause from the New York Workingmen’s Democratic Republican Association:

Property is the fruit of labor—property is desirable—is a positive good in the world. That some should be rich, shows that others may become rich, and hence is just encouragement to industry and enterprise. Let not him who is houseless pull down the house of another; but let him labor diligently and build one for himself.

Despite intervals of recession or near-recession that are an inevitable phenomenon in a market-driven economy, the overall standard of living of working Americans at all levels of income continues to rise. There is good reason to think that most Americans continue to share Lincoln’s outlook, rather than that of our academic and partisan teachers of envy. It is the opportunity to get ahead through one’s own efforts, rather than the hope of living off other people’s earnings, that continues to attract so many people to our shores.

David Lewis Schaefer is Professor of Political Science at the College of the Holy Cross and author of Illiberal Justice: John Rawls vs. the American Political Tradition.