Spreading the Wealth

In the final Presidential debate last night, Joe the Plumber became a household name. As a small business person, Joe was recently told by Senator Obama that under an Obama administration he would have to “share his wealth” with others.

Senator McCain made it clear that he wouldn’t raise anyone’s taxes, and did not want to share Joe the Plumber’s wealth with others. What McCain failed to explain, however, is that “sharing the wealth” is usually a prescription for “reducing the wealth.”

McCain should have made it clear that taking more money from Joe the Plumber would reduce Joe’s incentive to create that wealth in the first place.

Steve Buckstein is founder and senior policy analyst at Cascade Policy Institute, Oregon’s free market research center.

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Posted by at 05:55 | Posted in Measure 37 | 8 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Rupert in Springfield

    True McCain didn’t make clear that taking Joes wealth reduces incentive and thus Joe would create less wealth, hire less people and the downward spiral that is the essential nature of socialism would occur. However I am not sure McCain, or the vast majority of politicians get that.

    Look, its pretty simple, most people who contribute here have some knowledge of politics. Most here would take as a given that a reference to Ayers or the CRA would be understood without going into a deep description of who Ayers is or what the CRA is. We are sometimes shocked when we leave this group, and then make the same reference and realize most people would not understand the reference.

    Its the same thing with the wealth incentive thing. Most free market people have taken the time to think about this sort of thing, thus they understand it. Of course anyone who runs a business understands it as well. If you tax all my profits, why would I show up to run the business?

    Leave that group, enter the world of politicians. Most have never run a business and few have given any thought to how the market works. Most would be astounded to think that if profits are taxed at too high a rate, eventually the business owner stops showing up to work. The idea that if tax rates are set to zero, the government has no revenue is understandable to them. The idea that if tax rates are set to 100% the revenue is still zero because no one will work ( the famous Laffer curve ) will get incredulous stares as if you are Obi Wan Kenobi or something.

    “What? You are telling me the guy who runs the business wouldn’t show up to his own place of work? That’s nonsense”

    “That’s exactly what I am saying congressman, I mean turn it around, if he paid his employees sporadically or not at all, would you express the same surprise when they didn’t show up?”

    “Of course not, that’s a businessman who isn’t paying his workers, they have families to feed”

    “You think the business owner doesn’t?”

    “Yes, but what about his employees, you are saying the owner just isn’t going to show up? How are his employees going to work then, what is going to happen to their jobs?”

    “I don’t know, look, you taxed away all the owners profits, which is the exact same thing as the employer not paying his employees, why are you surprised because the owner leaves?”

    “But that’s different, are you saying a business owner doesn’t have a responsibility to his employees?”

    “Congressman, look, I hate to break it to you, but businesses are started to make money, not because someone feels a social responsibility to “provide jobs”. Maybe this little ko-an will help:

    “”Ju-Ahn walked home from the farm one day
    She was very sad because the farmer had no work for her
    Ju-Ahn was very hungry, and had no idea how she would feed herself.
    Ju-Ahn was also very mad at the farmer, how could he have planned so badly?
    Just then, Ju-Ahn looked up at the sky
    A beautiful seagull had swept down from the sky with amazing grace
    Ju-Ahn wished her job was as easy as the seagulls, and could be done with such grace.
    A moment later a hawk appeared, it quickly killed the seagull
    Ju-Ahn knew the fish had survived.
    As she thought about it swimming away Ju-Ahn realized.
    Silly seagull, how stupid to have pride and not plan for the hawk,
    Ju-Ahn realized then, a job is not a social program.
    In that moment, Ju-Ahn was enlightened””

    “Ahh, ok, I sort of see what you mean now Rupert in Springfield. You’re a pretty smart guy I guess, where did you learn this stuff? Genius school?”

    “That’s just it Congressman, this is pretty basic stuff. The reason why it is so hard to grasp is because we have demonized business, corporations, so much that now the basic premise of them, to make money, is so despised that people don’t understand that’s why they are started”

    “Yeah, I guess that’s kind of true, I mean we have been running around saying all these bad things about corporations, and how evil it is to make a profit, then it sort of makes sense that people are left then to conclude that every business that exists solely to make a profit is evil, and since not every single business can be evil, then it follows not every single business is there to make a profit.”

    “Hey, your catching on Congressman, that was pretty good, a few more little quips like that from you and I might actually think you are lurching into the world of common sense”

    “Wow, thanks so much for explaining this all to me Rupert in Springfield, I only hope that every day, in every way, I can be more and more like you”

    “Would that all thought that way congressman, would that it were true, would that it were true……..sigh……….hey, can you pass me my light saber, I have a dinner thing I got to get to”

  • dean

    It turns out “Joe the Plumber” is not really Joe, is not a plumber, and would get a tax CUT under Obama’s proposal. But perhaps he should exist only as symbol, not reality. I think Joe, or whoever he is, probably wishes this were the case by now.

    Its great to not want to raise anyone’s taxes. Terrific. Bush cut taxes and we went from running annual surpluses to a doubling of the national debt. Economic growth and income growth were much higher under Clinton, with higher taxes, then they were under Bush, with lower taxes. But as with Joe, lets not let facts get in our way here.

    The distance between the incomes and wealth of the richest 1% of Americans and the other 99% of us is at its highest level since the 1920s, just preceding the crash of 1929. We now seem to be experiencing a crash of similar magnitude. Coincidence? Maybe.

    Obama seems to have a political and economic philosophy that the measure of our economy is not in how rich the rich are, but how well the rest of us are doing. This can be dismissed as economic populisim, but it just might also be very good economics. It might be that the trickle down theory and policies we have been living with for most of the past 28 years was fools gold. That rich people piling up more houses, more cars, more stocks, more illegal immigrant maids, and so forth does not result in more and better paying jobs for the rest. It might be that “sharing the wealth,” which means taxing the rich at higher rates and spending that money downward, but also means making unions easier to form, raising the minimum wage, building infrastructure we all and the economy rely on….it may be that these policies….liberal….socialistic…whatever you want to call them…..result in a more prosperous, more peaceful nation with lower crime rates and happier people.

    A case study is Denmark. much higher taxes on wealtheir people, next to zero poverty, low crime, good health, and among the happiest people on earth.

    • Anonymous

      OH, good. Move to Denmark, maybe that’s why my family emigrated to the US

      • dean

        You moved here to be less happy? Mazeltov… it seems to have worked for you.

  • David from Eugene

    First of all sharing the wealth does not destroy wealth. It just causes it to fall into different hands. While reducing Joe’s bottom line may reduce his incentive, it may also increase the incentive of those who receive it. Government programs that “Share the Wealth” deal with one of the more significant problems with the American Economy.

    That problem is that over time the relationship between major components of the economy has become out of whack. Take the housing market and the difficulty for the middle class to find affordable housing; is it the case of middle class housing costing too much or middle class wages being too low? Or Government spending, a topic often discussed here; are public sector wages too high or private sector wages too low? Is the product over priced or is the customer’s perception of its “correct price” too low? We have businesses who would never consider selling their product at less then cost, routinely expecting their employees to provide their labor at less then cost. It is now common for the cost of obtain the education to do a needed job is out of whack with the compensation from the job. We have the ratio between the CEO’s compensation and that of the lowest paid employee going from 40 to one to over 400 to one. We have growing number of companies that have lost sight of a basic principle of business; directly or indirectly your workers are your customers, and when they can’t afford the product they make the nation has a problem. For the United States to stay a prosperous nation we need bring the out of whack segments of our economy back into alignment with each other.

    • dean

      Money tends to attract more money, which is why the rich usually get richer. Once you reach a point where you have excess capital, you can hire smart people to invest that capital and thus build your wealth farther and faster than working stiffs who are confined to wages only. Some of this extra capital buys extra political influence, leading to deregulation of financial markets and reductions in capital gains taxes, so now one can grow one’s capital even faster. Its no coincidence that since 1986, when the IRS began keeping track, the share of pre-tax national income going to the wealthiest 1% of Americans went from about 12% to 21%. Meanwhile wages and salaries for most Americans were stagnant, or even declining for the lowest 20%.

      The trick is to find ways to take from the rich and invest in things useful to everyone else, without over doing it. This is especially true in a globalized financial system, where the rich can fairly easily shift their assets overseas. Its a shifting sweet spot, and we may soon find out how much the rich goose can be plucked before it flies away.

  • John in Oregon

    I find this interesting Dean. > *It turns out “Joe the Plumber” is not really Joe, is not a plumber, and would get a tax CUT under Obama’s proposal. But perhaps he should exist only as symbol, not reality. I think Joe, or whoever he is, probably wishes this were the case by now.*

    Lets explore this a bit. First the context. Obama decides on the spur of the moment to do a residential street walk meet and greet for local media. Walking up to “Joe” and his son we learn that Joe works for a plumbing company. Joe has the dream of buying into the business and wonders about taxes.

    Obama makes it clear that it’s necessary to spread the wealth around.

    Now about “Joes” dream. Is it a pipe dream. Possibly. Does Joe have a masters license, no that goes with the business. Yet Joe does have the dream to buy into the business. Joe and 4 other employees earn typically $50,000. Mr. Newell the current owner is licensed in Lucas County, and if he is lucky gets to take some money home at the end of the month. That’s $250,000 in salaries alone, not counting stock, service vehicles, shop space and all the other things that make a small business run. And remember Obamas tax is on gross revenues. This business is definitely a greedy top 5 percenter.

    But then who the hell is this Joe guy to think he can have this dream? Only one month away from time in service to earn his journeyman’s ticket. As you said Dean, Joe is just some stupid grunt who should be happy to get Obamas $10,000 check. And Joes dream has been crushed. Ohio county Democrats have assured Obama and the Media that they will get Joe fired before 5 years time in service. “A staff person with the Toledo Division of Building Inspection told On Call this afternoon that her division will contact Wurzelbacher to notify him that he can’t work without a license.” Joe is just an apprentice, not worth the dirt under Obamas fingernails.

    By the way. Not one of the officers of Toledo Local 50 of the union shop of plumbers is on the list of licensees. But that’s just a distraction.

    “It was against ethics laws for Illinois legislators to receive speaking fees when Obama was a State Senator. Interestingly, Obama listed income from ‘speaking fees’ on his tax returns during those same years.

    This story has been out there since March and yet the media is strangely uninterested. It’s not like they lack the capacity to do this kind of story, I mean they discovered Joe the Plumber’s tax warrant in about 23 minutes. So it must be something else. Hmmmm….what could it be?”

    Dean you said > *The distance between the incomes and wealth of the richest 1% of Americans and the other 99% of us is at its highest level since the 1920s, just preceding the crash of 1929. We now seem to be experiencing a crash of similar magnitude. Coincidence? Maybe.*

    Enough of the class warfare Dean. You know full well that over the last 16 years incomes in all levels have grown. You also know full well it was the push to give excess sub-prime credit that caused the crash. And don’t pull out your deregulation explanation.

    It is only by this slight of hand comparing the “distance” between the top and bottom 1% that any kind of case can be made. Who are the 3 million in the top 1%? George Soros and a few others we know. There are others. Larry Page and Sergey Brin for example. Some 10 years ago they were just two geeks with an idea. That idea resulted in a multi billion dollar company and a huge jump in the wealth of the top 1%. Those two moved the top 1% even higher.

    You want us to believe this is bad, it’s evil. But lets look a bit further before I demolish your argument. Some 10 years ago Larry and Sergey were little more than geeks in the bottom 40%. Living hand to mouth on loans. Now they are on the top of the top 1%. That is one important point. Those in the bottom 40 are not fixed. People move up. Some to the to top 50 and yes even some to the top 1. Its called Upward Mobility. You have to ignore upward mobility, it’s the only way you can begin to make the argument the “poor get poorer”. Upward mobility puts lie number 1 to your argument.

    There is much more. There is an unspoken premise to your argument that I will now demolish. Consider how Larry and Sergey became ultra wealthy. Did they steal from the poor? No they built a company and created new wealth. In the process Google employs thousands in high wage jobs. Wealth that had not previously existed. Your unspoken premise it that wealth is a zero sum game. That the wealthy gain wealth only at the expense of the less wealthy.

    These two, upward mobility and wealth creation are key. As you said > *[R]ich people piling up more houses, more cars, more stocks, more illegal immigrant maids, and so forth does not result in more and better paying jobs for the rest.* So lets examine a country where mobility is limited and wealth creation restricted. Zimbabwe, once the breadbasket of Africa, now the basket case of Africa. Just how well did penalizing the wealth creators work out? Of course its fair everyone suffers.

    In the last few months someone in the media, I don’t recall who, asked Obama about his Capital Gains policy. The question, You know raising Cap Gains will depress the economy, do you really want to do that?

    Obama responded. Yes I know and I will do it anyway, it’s a matter of fairness.

    This is a stunning admission by Obama. Not the admission that he understands that the Capitol Gains tax depresses the economy, and he did make that admission. It was his admission that punishing the creators of wealth is a matter of fairness.

    We have come full circle back to Joe the plumber. Or as you say > *he should exist only as symbol, not reality. I think Joe, or whoever he is, probably wishes this were the case by now.*

    I am sure your right. When Obama entered Joes yard, his castle I am quite sure that Joe thought that in America a citizen could ask a question of a politician. That Obama said what he really thought, that was Joes fault. Joe knows better now doesn’t he?

    It took less than 24 hours for the media and Obamas campaign to make every derail of Joe the plumbers life public. Not ever his divorce papers are off limits. I would say yes Joe learned. He learned don’t stand in the way of some politicians. They will not only crush your dreams, they will crush you. We cant allow any distractions.

    • dean

      John…too little time this morning to tke this on in detail, so just a few points:

      1) Obama’s repeal of the Bush tax cuts for those making over $250K a year would not apply to joe or his boss or a future Joe who buys his bosses busines unless the NET were over $250K per year, or unless he paid himself that salary. AND the tax rate only kicks in for the dollars earned over $250K, so if he earned say $275K he would only pay the extra on a small part of his income. Do you agree or disagree with this?

      2) If Obama broke the law then he should be prosecuted under it. What does it matter what “the media” does with it? It matters what prosecuters do.

      3) Class warfare is what has been practiced against over 90% of Americans these last 28 years. Its time we realized what the fight is and started to fight back. Apparently I’m on the litle guy side and you are on the fat cat side. En guarde!

      4) 1.9% of American households make $250K or more. Soros is in a more rarified level of the .1% who make in the millions, along with Warren Buffet, the Kennedys, Paris Hilton, Barbara Streisand, Cindy McCain, and the Clintons. They can all afford higher taxes, and many if not most of them are for Obama.

      5) Larry and Serge are also for Obama. Nothing in his tax proposal would have discouraged them from their business venture. And to the extent Obama would help pay for middle class kids to go to college, we might have more Larrys and Serges out there to help propel us forward.

      6) Cap gains is an ethical as well as economic issue. If we tax unearned income at lower rates than working people pay, what sort of message is that about work?

      7) Poor old Joe. McCain trotted him out there as the next distraction from McCain’s economic policies. Joe took the bait, and now he is on the hook. Poor Sarah Palin. Poor everybody on the right. Not a good year for them.

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