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Brooks Wilson's Economics Blog: Clinton on The Rich's Fair Share

Friday, May 28, 2010

Clinton on The Rich's Fair Share

(HT Drudge Report) At a Brookings Institute forum discussing the administration's national security strategy, Ben Smith of Politico ("Clinton: 'The rich are not paying their fair share'") reported that Hillary Clinton said.
The rich are not paying their fair share in any nation that is facing the kind of employment issues [America currently does] — whether it's individual, corporate or whatever [form of] taxation forms,
I have many problems with such a short statement.  Rather than ask the rich to support their policies aimed at aiding the unemployed, her implication that the rich are shirking social duties engenders a sense of entitlement, and that entitlement, a sense of ingratitude owed taxpayers who fund these programs.  The unemployed are owed nothing that they don't earn.

Clinton's statement also implies that the government is a better economic steward or the rich's money in a social sense than the rich are themselves.  What would the rich do with the money if it is not taxed?  They have three options: consume, invest, or save.  If they consume, they are directly employing people who produce goods and services.  From a social sense, this may be superior to providing incentives for workers to remain unemployed by expanding unemployment benefits or other welfare programs.  If the rich invest, they are directly expanding the base of goods and services that our country can produce, making our country wealthier and providing employment opportunities.  If they save, they are funding the investments of others who would expand our production possibilities.  Even if we are in a liquidity trap caused by financial institutions deleveraging, free and voluntary savings is superior to government bailouts because it cuts out the middleman, the taxpayer. 

What would the government do with the tax revenues?  They would expand a bureaucracy that takes from one set of citizens and gives to another.  That bureaucracy will probably not shrink when the market economy resumes growth.  Worse still are the perverse incentives that entitlement programs create.  Both the poor and the rich have less incentive to work to produce goods and services.  The economic literature is clear that societies with high levels of transfers grow more slowly than those without.  

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