Dear Dr. Hurd,
Please explain very simply like Economics 101 how to deal with people who insist that the rich do not pay their fair share. Before people get paid money is taken out for taxes.
How does it work for someone who is wealthy and has investments. Spell it out so we can explain how it works. I really do not know. Do these fair share fanatics want to do away with tax-free shelters?
Should it be illegal to invest money overseas? Warren Buffet started a lot of trouble when he said his secretary pays more taxes than he does. Please explain like we are 3 year olds how all of this works.
Dr. Hurd’s reply:
The primary issue here is ethical, not economic. Let me explain.
Human beings are either entitled to keep the products of their efforts—or they’re not.
If they’re not, then you live under a dictatorship of some kind. Most people on the planet still live under a dictatorship of some kind, and most people throughout history have as well. Nazi, Communist, King, Czar, Islamic mullah, you name it. Some are more dictatorial than others, and they’re all dictatorial for different reasons (i.e. rationalizations), but they all curtail (among other things) the right of people to keep what they earn.
The United States, since 1776, has tried to avoid dictatorship. In the United States, we split the difference. We don’t have economic dictatorship (not yet), but we do have compromises which rest on some attempt to mix freedom and government control. In other words: To avoid all-out dictatorship by granting a little bit of dictatorship here in exchange for preserving some freedom over there.
For example, we tax people for their income. People who make more money are taxed at higher rates. They call this ‘progressive.’ At the same time, there are compromises. Under certain conditions, some people are allowed to keep more of their money than otherwise stipulated by the tax law. These are called ‘tax breaks.’
We’re told that tax breaks are inherently unfair. They are, but not for the reasons we’re told. We’re told they’re unfair because people who make more money than others should not be given any breaks—in fact, they should always be taxed more, probably without limit.
Is this fair? Of course not. If you create a product or provide a service that millions want, and you consequently make a lot of money because of your accomplishment, then you’re (by moral right) allowed to keep all of it. Of course you will voluntarily contribute to a (rational) government to pay for a defense and military, court system and police force. If you didn’t, civilization would collapse from thieves and invaders and your billions would soon be worthless. But nobody, in fairness, can force you to give to this charity, that cause, or this or that insurance program or school. That would all be left to the private market, if the moral right to keep what you earned was upheld.
What I’m trying to show you here is not Economics 101, but Ethics 101. Ethics 101 answers the question: Is a person entitled to keep what he or she earns—or not?
All the economic complexities you ask about relate to ethics. No economic problem will ever be resolved until we first figure out where we stand on ethics.
For example, you ask: ‘Do these fair share fanatics want to do away with tax free shelters?’ Yes, they do. It probably won’t ever happen, but they want to do so because of how they define ethics. Their ethics consists of the belief, ‘From each according to his ability, to each according to his need.’ In other words, you don’t have a right to keep what you earn—not all of it, at least—if you have more than another.
Tax shelters get in the way of this ethical belief. That’s why, according to this ethical belief, tax shelters (or tax credits, or anything reducing taxes on those who earn more than average) must be eliminated. Most politicians in America don’t go quite that far. Obama has gone further than most and holds this redistributive ethical belief more stridently than (to my knowledge) any President in our history.
Should it be illegal to invest money overseas? Not if it’s your money. If you’re rational, you’ll be careful about where to invest your money. But if it’s your money, it’s your money. You’re entitled to spend money on workers in India if that suits your interests. You’re also free to try doing so, realize it creates problems for your customers, and then reverse course. With this issue, too, it all boils down to ethics. Is it your money, or not?
The reason economics seems so complicated is that people have made it more complicated than it needs to be. Because of the belief that people don’t own what they earn—even if they earn billions, like Warren Buffet—we have created all kinds of contradictory incentives and rules, via laws, that perpetuate and feed off dysfunction.
If we had a total and complete dictatorship, in which every penny earned ($100 or a billion) went to the government, who then decided where that money should be distributed, it would be a lot easier to understand.
My vote is NOT for that approach. My vote is for the absolute opposite. Limit the power of government to punishing force and fraud. Separate government and state in the same way, and for the same reasons, as we separate church and state (borrowing a phrase from Ayn Rand). And let’s put Big Government—as we know it—out of business. Do it gradually over time if necessary, but do it and don’t stop until it’s done.
That’s my endgame, but it’s not the endgame of the people we currently have in power. Check out those results for yourself.
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