How Buffett bluster boomerangs; or, Taxosaurus Rex
April 14, 2012 2 Comments
The unvarnished rhetoric coming out of the White House over the past two weeks has been just too delectable for conservative commentators. In a recent WSJ piece, Daniel Henninger suggests that Democrats’ furious assault on Paul Ryan’s budget plan is desperate “thermonuclear” overkill. Indeed, all the accusations of Social Darwinism and “trickle-down” economics cannot make up for Democrats’ utter lack of seriousness when it comes to the national debt.
As the White House rolled out the practically inconsequential yet politically expedient Buffett Rule this week, I was amazed at the justification given by allied economist Alan Krueger. The Christian Science Monitor quotes:
“In addition to fairness, in fact it’s a step in the direction of economic efficiency,” said Alan Krueger, chairman of the Council of Economic Advisors. The Buffett rule allows people to “devote more effort what their focus should be, which is to their jobs and job creation … rather than restructuring their income to minimize their taxes.”
He’s alleging that the tax increases economic efficiency. But how does government spend anyone’s money better than they themselves would? During the global high tide of state central planning in the 1940s, F.A. Hayek explained cogently in his The Road to Serfdom who spends money best: the one who earns it.
When given other people’s money, legislators face the temptation of buying constituents’ votes with pork rather than allocating it wisely. Then the money goes to bureaucrats, who are not careful enough with it. Their lack of accountability flows from the political difficulty of de-funding them. It is the original income earner who best appreciates the sweat and effort it took to get the money. She appreciates the reality that her income might dry up tomorrow, and so will handle it more carefully than the central planners.
According to his critics, the car elevator in Mitt Romney’s mansion is a bad thing. But he used his own money, which he only earned in the first place by benefiting others in voluntary transactions. And the construction provided gainful employment to all sorts of craftsmen.
President Obama, meanwhile, either had to grow our debt or tax money out the economy to give us public project flops like Solyndra and the constipated stimulus weatherization projection. Money that otherwise would have been carefully spent in private hands was squandered by legislators and bureaucrats.
Of course, not all government spending is bad; some spending is necessary. But Krueger’s claim that a tax increases efficiency overlooks government’s great tendency towards inefficiency.
The case against the Buffetteers may be clearer when we look at that favorite magic word of progressives and liberals, “investment.” Any public project from education to high-speed rail becomes an unmitigated good if it can be spoken in terms of investment. But our current, low tax rates vindicate private investments as an even greater good. This is why Buffett and Obama pay less in taxes than their secretaries. The Monitor quotes Marco Rubio:
“What [Americans] need to understand is the reason why he may pay less than his secretary, in terms of the rate, is that she makes her money on a paycheck and he makes his money on investments,” Senator Rubio said. “We have always wanted Warren Buffett to, instead of putting that money in a coffee can, to take his money and invest it, because that created jobs.”
As much as the Buffett-minded would increase taxes on private investment earnings, they would demolish the incentive to invest and crash the stock market. In this way the Buffett Rule boomerangs back on itself.
Class envy can’t lift up the poor, but it can bring us all down. Let’s all move past the Buffett distraction.