Tuesday, July 13, 2010

Taxing the Rich

Dana has a nice post on the liberal obsession with taxing behavior they dislike, which makes very good points, but lead me to this Ross Douthat column which argues that "taxing the rich" can sometimes be a good thing.

The left-wing instinct, when faced with high-rolling irresponsibility, is usually to call for tax increases on the rich. But the problem, here and elsewhere, isn’t exactly that we tax high rollers’ incomes too lightly. It’s that we subsidize their irresponsibility too heavily — underwriting their bad bets and bailing out their follies. The class warfare we need is a conservative class warfare, which would force the million-dollar defaulters to pay their own way from here on out.

Over the last couple of years, there's been a great deal of talk about "too big to fail" companies and bailing out banks and such. There are those who argue that such bailouts were necessary to keep our economy from falling off a cliff, but it certainly illuminates the idea that there's one set of rules for the rich and another for the rest of us.

Back during the S&L crisis of the late 1980s, I thought it was insane that there was federal insurance covering at least $100k of anybody's money in the shakiest institution in town. That insurance encouraged people to find the worst savings and loan with the highest interest rate to bank with, safe in the knowledge that they would be able to get their funds regardless of the institution's solvency. That the taxpayer was on the hook for these ponzi schemes was no matter to me; I liked getting the high interest rates. Of course, I was young and liberal then, not realizing that I would be expected to pay higher taxes for years to come for financing these bogus schemes.

It's 20 years later and, apparently, we've still not learned the S&L lesson that bailing out bad companies doesn't really improve their performance. Why are we still subsidizing bad business decisions for big businesses? No doubt the employees of said institutions would be harmed (fired) when the company goes bust, but why are GM employees more deserving of my tax dollars than my favorite doughnut shop owner?
This policy is typical of the way the federal government does business. In case after case, Washington’s web of subsidies and tax breaks effectively takes money from the middle class and hands it out to speculators and have-mores. We subsidize drug companies, oil companies, agribusinesses disguised as “family farms” and “clean energy” firms that aren’t energy-efficient at all. We give tax breaks to immensely profitable corporations that don’t need the money and boondoggles that wouldn’t exist without government favoritism.

Douthat also points out this subsidizing the rich is evident in Social Security and Medicare, as well. The problem with means testing those programs, though, is that they were never sold as welfare programs (which would make them more vulnerable to cost-cutting). We were all told that everyone gets a share. IMO, the biggest problem with Social Security is the cap on the tax. Why is it that only the first $106,800? If you're going to tax people for this, it would bring in more income to tax the whole thing, not that I'm a big tax-everybody-person.

The bottom line here is that subsidizing bad behavior is bad public policy, whether you're talking about welfare, unemployment, or government subsidies for businesses. They all send the wrong message: taxpayers are suckers.