The iPad Tax

This Marginal Revolution blog post, linking to another post by Miles Kimball, who suggested we thank the top 100 tax payers, reminds me of this post of mine from 2010 where I — less eloquently than Miles — suggested that we thank the rich for the taxes they pay, rather than demonize them.

I thought the comment discussion to that Marginal Revolution post was lively. I was intrigued by a couple of comments. MPS wrote:

The richer you are, the more you benefit from government. It’s obvious from the standpoint of if you were born out in the jungle, you wouldn’t be so rich. In more proximate terms, your wealth derives from things like intellectual property protections and other safeguards of capital that allow people to extract large sums with little physical labor. This is all very well and good as part of a system of government intrusions designed to incentive behavior that increases overall wealth, but when you become wealthy it is through a channel created by government to reward your wealth-enhancing behavior, and not because you exerted so much physical labor to earn it at true competitive market rates.

Too many people share some sort of version of MPS’s sentiment on government, which explains why it has grown well beyond the too-much-of-a-good-thing level. These people vote for politicians who use government to solve any problem, instead of electing politicians willing to make tough and responsible choices like balancing the budget and cutting programs that should be outside the scope of government.

I have few responses for MPS.

1. As I wrote in this post, government is overhead.

Our ancestors didn’t create government and then get wealthy. We got wealthy enough to afford government. How? Our hunter-gatherer ancestors weren’t wealthy enough for government. They spent most of their time scrounging up food. They didn’t have enough time to send folks off to govern. As they got better and applied innovations like cooking, preserving food and farming, they created wealth (i.e. some slack time). Eventually, they freed up enough of their calorie producing activity to go vote on bills and hob-knob with lobbyists. Government emerged from wealth.

2. As Sowell and  Boudreaux point out, rich folks already pay for whatever benefits MPS imagines they get more of. Why should they have to pay again?

3. As Boudreaux also pointed out, there are, or have been, private solutions for much of the infrastructure that MPS believes only government can provide.

4. But, for me, the most important point is that rich people who earned their success didn’t get rich by government incentive channels as MPS describes. They got rich by providing something that made the rest of us better off. They benefited because we benefited.

Those that earned their success took risks that would turn MPS’s stomach. They tried and failed at several things, shook it off and tried again, when most of us would’ve been afraid to try, and if we got up the courage to give it a go, would have stopped after our first failure.

We use to want to encourage these people because we knew it resulted in good things for us. We wanted folks to get wealthy, because we recognized that they owned their effort and ideas and its only fair that they get rewarded, but more importantly, we wanted more good things for us. We use to not be too stingy about sharing bridges with them. 

MPS doesn’t realize his belief that we got those good things from the incentives and channels that government laid out, followed to its conclusion, only ensures he will get fewer of those good things.

Folks like MPS love the iPad. I wonder if he would be willing to give it up. When he uses “the rich benefit more” reasoning to support higher taxes on them, he is paying that tax by forgoing opportunities to buy future innovations, like future iPads.

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5 thoughts on “The iPad Tax

  1. A few points and a few minor quibbles:

    In regards to MPS’ proclamation that, “the richer you are, the more you benefit from government.” Balderdash! First, I am assuming that he means the type of government we have (or were intended by the founders to have) in the US. In proportion to taxes paid, the rich receive far less from the government than the poor. When you pay zero in taxes (or in some cases pay negative taxes because your get earned income credit), any benefits you receive are infinitesimally greater that what you put in. The same cannot be said for the rich who actually paid in something. More importantly, it is our government’s protection of property rights and enforcement of contracts that allows the poor to advance in society without the fear of predation by those already possessing more assets. In countries without these rights, the situation for centuries has been one of a few wealthy elite and their political puppets preying on the poor. There is no upward mobility in these nations as there is in truly democratic countries that have a rule of law. When the poor start to make a little money in these countries with no property protections, they are afraid to invest it to generate even more wealth because they fear that some predator will come along and take what they have. It is civilizations and nations whose people recognized this and developed governments to protect these rights that have advanced while those that have failed to do so have remained impoverished.

    Seth sums it up nicely when he says that government is overhead. MPS has the proverbial cart before the horse when he assumes that government came first. Rather, people eager to engage in exchange and build wealth entered into a social contract and formed government by formally agreeing to keep each other to his word and to protect the right of each to the security of his own person and property. It didn’t happen the other way around. Why would anyone propose to have a government protecting such rights that would enable and promote their economic activities unless such economic activities already existed and the people involved in such recognized the advantage to engaging in such mutual agreements?

    So, my little quibble with Seth’s verbiage is that I think it’s more accurate to say that government emerged from the beginnings of wealth and permitted the rapid accumulation of such.

    • Thanks…I’ll take a look and post on it. Initially, I’d say his logic sounds a bit like saying, chickens don’t create eggs, consumers do by wanting them.

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