Monday, March 29, 2004

The politics of class envy

Mark Dorroh

When we're very young, envy plays an enormous role in our perception of justice. Any small child who thinks his sibling was given a bigger slice of dessert pie is liable to make a large production out of it.

"No fair, his is more than mine!"

As we grow older and begin earning our own slices of pie, we're expected to learn that not everybody gets exactly the same rewards out of life. Sometimes this is due to accidents of birth, but to the extent that we live in a free enterprise system of merit-based remuneration, acquisition of wealth in America is most often based in ability and commitment, plus the invisible hand of market forces.

That is to say, it's not fair that Michael Jordan has reflexes three times as good as mine, plus a higher IQ, a powerful physique and a degree in economics from a prestigious university. But the fact of the matter is, Jordan worked unimaginably hard to hone his physical and mental abilities. The same is true of Meryl Streep's acting talent and Bill Gates' software savvy. We don't all get dealt the same hand in the big game of life, but as any poker player can tell you, in the long run, it's how you play what you're dealt that determines whether you win or lose.

Sadly, many of today's political paradigms are built not on assumption of personal responsibility so much as the childish politics of envy. Take the campaign catchphrase, "tax breaks for the richest Americans."


Set aside the rhetoric for a minute, and let's see what's really going on here. In the most recent rounds of federal tax cuts, everybody in a given tax bracket got the same rate reduction. That's what "marginal rate reductions" mean. When you think about it, it's really quite similar to what happens with your city or county real estate taxes. At the local government level, everybody understands that if the real estate rate declines by a few cents per hundred dollars valuation, people with $500,000 houses will save more on their tax bill than people with $50,000 houses. That's how marginal tax rate reductions work. Those who pay more than I do will save more than I will when rates are reduced for everybody. That's also elemental fairness, unless you subscribe to the politics of envy.

Interestingly, at the federal level, even after all President Bush's tax cuts were enacted, the top 10 percent of wage-earners still wound up paying something in excess of 60 percent of what the government collects in personal income tax revenues. So in fact, all those "tax breaks for the rich" somehow managed to leave that despised economic class holding most of the bag regarding our shared liability for paying America's public bills.

The people who advance the modest proposal that we "eat the rich" are doing us, the citizens of average means, no big favors. They'll try to make us believe we're getting some sort of advantage out of the deal, but analyzing it in macroeconomic terms proves otherwise.

In the big picture, the fact about rich folks is, the money they save on taxes has to be put somewhere, and where it mostly goes is into investments. If one's income is high enough, it's nearly impossible to spend it all, and anyone with an ounce of sense is going to take the leftover money and lend it out at interest.

Because of supply and demand, more private-sector money available for investment means lower consumer interest rates. Most of the money the government does not take from a rich taxpayer goes into the massive American capital-lending pool through one financial instrument or another.

Then, when we need a home mortgage or a student loan or a business loan, the more private-sector cash not locked up in government programs, the cheaper our money will be to borrow.

These are inconvenient facts, facts which should now compel us to ask the inconvenient question, "It worth cutting down on our own access to affordable capital, just to get even with people who have more of it than we?"

Class warfare and collateral damage

Class warfare is like any other kind of warfare. It hurts not only its intended targets; there's always some collateral damage to the general population. That is the nature of warfare, economic or military.

To put it another way, "no one wins a war, one side just loses more than the other."

Confiscatory rates of taxation bleed money out of private investment markets and put it into government programs, some highly necessary, others of dubious worth. Unless you believe a huge institution like government is more efficient at making investment decisions than individuals with hopes and dreams and the willingness to work incredibly long hours to succeed, there's no way higher tax rates on the rich ever benefit anyone but politicians who make careers out of spending "O.P.M." (Other People's Money) to buy votes from credulous constituencies who possess an insufficient grasp of basic economic theory.

When we allow government to take in taxes money that should go into investment markets, we're really allowing our own future loan rates to be artificially inflated. The reason most of us don't understand this principle is that the money pours into government coffers in large identifiable chunks, whereas the money we save through lower interest rates dribbles back to us in small, regular increments. The resulting gap between economic perception and reality makes it pretty hard for most non-economists to see the benefit of reasonable tax rates on the rich.

There are far too many politicians who regularly pimp us out through the crafty use of class envy, denying our families lower rates on borrowed money, at the same time (and not coincidentally) making us all more reliant on government than we would be if we were to get, instead of government largess, cheaper interest rates.

It's a mug's game. It's also a fitting punishment for a nation of voters cunningly manipulated through the politics of envy.

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