Friday, December 10, 2010

A Clueless Filibuster against the Wealthy

Sen. Bernie Sanders has launched a filibuster against President Obama's tax-cut compromise with congressional Republicans.

Sanders, a socialist, is against the deal because it extends the Bush-era tax cuts to all the income of the nation's wealthiest.

Now, as I said, Sanders is a socialist, so it is understandable why he takes this position, clueless though it may be. But, I'm not so sure that they majority of Americans disagree with him. My bet is that the prevailing attitude across most of the country is "the rich can afford to pay higher taxes".

But the real question should be, "can we afford not giving the rich more of a tax break?" 

Nobel prize winning economist, Friedrich Hayek, once wrote that if the world ever found itself in a situation where all wealth was distributed equally that it would make sense to take from the many and create some of superior wealth. Now, of course, he wasn't recommending a new coercion on a practical level, but merely a thought experiment to point out that people of wealth are important to a society, simply because they are wealthy.

Wealthy people are of value precisely because they can save and make investments. Investments are of value because they provide the funds to purchase and create machinery that will ultimately result in more consumer goods. It's not the Keynesian fallacy of consumption that is important, and its certainly not the socialist fantasy of evenly distributed wealth that increases a country's standard of living, it is production that increases the goods available and thus the standard of living.For that production to occur, investment is required, and it is the wealthy who are in the best position to increase investment in production. In this sense, a tax cut for the wealthy is a more important tax cut than a cut for middle and lower classes. In the long run, a tax cut for the wealthy will help us all.

Of course, all tax cuts are good tax cuts.


  1. "Friedrich Hayek, once wrote that if the world ever found itself in a situation where all wealth was distributed equally that it would make sense to take from the many and create some of superior wealth."

    Why would this be necessary? Assuming the hypothetical (everyone starts with equal wealth) - why would there be a disincentive for investment by anyone? Why would people need to start wealthier than others to create investment?

  2. The best wat to look at it is upside down. If everyone has $5,000 and one person has a million, than the person who has the million has a much greater incentive to save. If his money is taxed away and we all end up with, say, $5,100 then there is likely to be a lot less investment in the world.

    Again, Hayek is not recommending the taxing of the middle class and lower classes as a practical step, but as a mental experiment to show how wealth is important.

  3. Try to create a start-up without wealthy investors somewhere. It is high risk, the majority fail, there is no way to test it without putting the money in and doing it, you could loose the entire investment. If everyone in the world had the same amount of money their assets would certainly fall short of a projected comfortable retirement with medical care. It is almost impossible to publicly issue stock on a totally unproven business idea. Banks won't lend under those circumstances - they cannot have that many loans crash. If someone managed to create a new enterprise, wouldn;t he and the few who risked their comfort be entitled to financial reqard? wouldn;t the equal distribution start to skew as soom as their was progress?

  4. Your kidding, right? Ten years of tax cuts while running two wars during boom times and now deficit spending 1.4T for the shortfall has produced what? That's right. It's over. Get over being coddled with kick it down the road stimulous, tax cuts, un-employment morphing into welfare and debt monetization. These cuts should end for everyone. Christ free Agnus, 48% of americans pay no tax at all.

  5. I respect any politician that is true to their beliefs as Sanders is to his commitment to socialism, but the stupid part about it is that it’s based on complete ignorance of the tax code and a politically motivated definition of rich.

    If the democrats are so committed to taxing “the rich” why do they not at least attempt to tax the income types (capital gains and dividends) of the very wealthy the highest? Why do they instead insist on heavily taxing ordinary income ( W-2, interest and flow through business income) which is the income that most people that are accumulating wealth have? One of the ironic unintended consequences of their tax policy is that it favors those with large fortunes by making it more difficult for others from the middle and lower class to join their ranks and thus share in the power base that come from accumulated wealth. If I had an enormous fortune and wanted to prevent others from becoming wealthy and diluting my power, I would support a 99% tax on ordinary income.

    However, the worst unintended consequence of current tax policy is that it has stupidly shifted nearly the entire burden up to the top. While that may make a socialist like Sanders giddy like a kid in a candy shop, it means that this country is totally dependent on this group not only maintaining their current incomes but growing them to match the spending growth of government. When you combine this with a competing goal such as income redistribution, you create an even more financially unsound model then already exists. Thus, if income redistribution does actually happen, those who see their incomes go up, will not replace the lost tax revenue that was taken from the top. In the business world they call this putting all your eggs in one basket.

  6. @Anonymous Dec 10th, 6:13pm post - I don't think I'm going out on much of a limb saying nobody in the Wenzel/Austrian/Hayek camp of economic thinking advocates lowering taxes without cutting spending commensurately...and neither do they advocate these crazy, unnecessary and expensive wars or current deficit spending to support unconstitutional/unauthorized spending on Medicare, Medicaid, SS. Neither do they advocate kick-it-down-the-road stimulus, targeted tax cuts, welfare and debt monetization.

    I believe the point of the article was to remind the economically clueless that wealthy people play a necessary role in capitalism...they save money - more so than non-wealthy people - which fuels capitalism, investment...and also causes interest rates to fall naturally as the savings increases the supply of loanable funds (not forced lower by FED printing).