How About Tax Reparations for the Rich?
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How About Tax Reparations for the Rich?

by Don Watkins and Yaron Brook | January 18, 2011 | Forbes.com

The recent debate over the Bush tax cuts was filled with enough rich-bashing and envy-stoking to make Karl Marx blush, and while the left may have lost that battle, it just might be winning the war. A recent 60 Minutes/Vanity Fair poll finds that 61% of respondents advocate raising taxes on wealthy Americans as the “first step” in balancing the budget. (By contrast, only 7% advocate cutting the entitlement programs — Medicare and Social Security — that are chiefly responsible for the budget crisis.)

It doesn’t take an economist to see that our fiscal mess was not caused by rich people keeping “too much” of their wealth, but by the government spending too much of everyone’s wealth. So why have cries to soak the rich started to, well, sink in?

Americans, historically, have not been envious of wealth. The predominant attitude has been: let a person make as much money as he can, provided he earns it. The reason class warfare rhetoric has been effective of late is because the practitioners of class warfare have largely succeeded in painting the rich as unproductive parasites.

Wealthy people are a bunch of Paris Hiltons and bailout recipients, they’ll suggest, even though most wealthy Americans are first-generation rich, and only a tiny sliver were bailed out after the financial crisis. (Whether anyone should have received a bailout is a different question.)

Other class warriors are more subtle. Former President Bill Clinton, for instance, put the matter this way: “I think that the people that benefit most should pay most. That’s always been my position — not for class warfare reasons” –no, never those –”for reasons of fairness in rebuilding the middle class in America.”

But if we’re talking about the creation of wealth in a division of labor economy, the most productive Americans don’t benefit the most: They contribute the most. Thirty years ago, if you were a shop owner, you spent a large chunk of your time poring over inventory, keeping your books, clinking away at your calculator, double checking your numbers, and going through enough correction fluid to whitewash a fence.

But thanks in large measure to software pioneers like Microsoft founder Bill Gates, most of those tasks now take a fraction of the time, can be performed far more accurately and have become so simple that you can probably delegate them to an entry-level clerk. You gave Bill Gates a few hundred bucks; he gave you a better life.

Super-wealthy Americans — men like Gates, Warren Buffett and Fred Smith — are predominantly thinkers and innovators who succeeded by contributing new ideas to the productive process. Not just new inventions, but new methods of organization, marketing, worker motivation and production, distribution and finance. That’s to say nothing of the fact that wealthy people are the primary contributors of capital to the economy — the factories, tools and technology that make the average American worker hundreds of times more productive than his Third World counterpart.

Relative to the new ideas they contribute, the most innovative individuals benefit the least. This is an aspect of what Ayn Rand called the pyramid of intellectual ability. As she observed, “The man at the top of the intellectual pyramid contributes the most to all those below him, but gets nothing except his material payment, receiving no intellectual bonus from others to add to the value of his time. The man at the bottom who, left to himself, would starve in his hopeless ineptitude, contributes nothing to those above him, but receives the bonus of all of their brains.”

Although class warriors like to pit “the rich” against “the working class,” it is the work of a small number of enormously productive individuals that is chiefly responsible for the unrivaled standard of living most Americans enjoy. People forget that before the Edisons, Carnegies, Fords, and Rockefellers of the 19th century, most of the “working class” lived on the edge of starvation — if they lived at all.

Considering how much we benefit from the great producers, it would seem that good manners–to say nothing of fairness and justice–requires a clarion “thank you.” Instead, in the political and public arenas wealth creators are increasingly smeared, spit on, and punished. This is un-American. A nation built on a foundation of individual rights and the pursuit of happiness should celebrate success, not punish it.

About The Authors

Don Watkins

Former Fellow (2006-2017), Ayn Rand Institute

Yaron Brook

Chairman of the Board, Ayn Rand Institute