Who Benefits More?
Who Benefits More?
January 27, 2012
Do the rich get more benefits from the government in return for their tax dollars? In a recent post, I casually mentioned that all citizens get roughly the same benefit from the government. Several readers objected. Let’s throw some more gasoline on that campfire.
This question matters because if the rich get more benefits from the federal government, some would say it is “common sense” that they should pay a higher tax rate. But, as regular readers of this blog know, common sense isn’t a real thing. And its ugly cousin, fairness, is a concept invented so dumb people could participate in arguments. Fairness isn’t a natural part of the universe. It’s purely subjective. So let’s agree that fairness can be ignored in this discussion. We’ll stick with what can be quantified, sort of. (If it were easy, it wouldn’t be fun.)
We’ll also limit our discussion to federal income taxes because that’s the main topic of national debate during this election year.
On the payment side, we all agree that the rich pay far more per person in taxes than the poor. And the vast majority of the rich pay a higher tax rate as well. The exceptions are some subset of the superrich, who are perhaps 1% of the top 1%. Let’s ignore the superrich for now because any discussion of that special group drags us into the unrelated topic of capital gains taxes.
We can also exclude from this discussion the 49% of American adults who pay no federal income taxes. They pay plenty of other taxes, but for now that is a separate discussion. To keep things clean and simple, the question boils down to this: Does the average millionaire get more benefits from the federal government than the average member of the middle class who pays federal income taxes?
Consider national defense. The rich pay far more per person to fund our military. Some would argue that is “fair” because the military is protecting far greater assets for the rich. For me, that doesn’t pass the sniff test. If our military disbanded tomorrow, the rich would move their money and their families to a safer country and leave the middle class to become slaves to the conquering Elbonians. The argument that our military gives greater protection to the rich, because the rich have more assets, assumes our national enemies are nothing but burglars looking for loot. It also assumes money can’t escape across borders with its owners. Granted, the rich might lose their mansions and businesses if they escaped with the rest of their wealth, but the middle class who can’t afford to escape would end up working in the Elbonian salt mines. According to my calculations, the middle class get more benefits from the military because national security prevents them from becoming Elbonian slaves. The rich are only at risk of losing a portion of their stranded wealth when they head to Switzerland. And depending on the ambition of our hypothetical enemies, we all benefit equally by not being killed. A rich dead guy is not happier than a middle class dead guy.
How about education? The rich benefit from an educated workforce because it allows them to staff their companies and grow their wealth. The middle class benefit by having job opportunities and a non-zero chance of someday becoming wealthy. In my case, a government-subsidized education system allowed me to go from lower-middle class to rich. And that makes me…oh, say 50% happier than I would have been otherwise. Meanwhile, the rich got richer, but I doubt they increased their overall happiness by more than 10%. If the goal of life is happiness, including health and physical security, I benefited the most from the government during my journey through the middle class, during which time I paid far less than I do now in taxes. Now that I’m in the top 1%, and paying at the top tax rate, even if I doubled my income tomorrow, it wouldn’t have much impact on my happiness. So while a functioning government allows the rich to stay happy, it allows the middle class an opportunity to substantially increase their happiness. I’d call that roughly a tie.
How about safety nets? Compared to the rich, the middle class have a far greater risk of someday becoming poor. That risk is magnified if they have relatives who might need assistance too. But arguably, safety nets also prevent the poor from forming marauding gangs of cannibals preying on the rich. If I didn’t pay taxes to provide safety nets for the poor, I’d spend a fortune on a private militia to defend my house. Benefit-wise, I’d call safety nets an equal benefit for all.
In discussions such as these, I like to call upon my automobile analogy. You can argue all day long whether a car’s engine is more important than its wheels, but unless you have both, the car is useless. It might be true in some technical sense that one class of citizen benefits more from taxes than another. But from 30,000 feet, it looks to me as if you’re arguing whether the engine or the wheels are more important to the car.
So far, we’ve acted as though we can compare one average rich person to one average middle class person. That makes sense when discussing the present. But the future is infinitely larger than the present, and therefore should be weighted more heavily in this discussion. That brings us to the question of birthrates. If the middle class person has two kids, and the rich person has one, the benefits of a stable government flow disproportionately to the family with the most offspring. Keeping two people alive is better than keeping one person alive. So if it’s true that birth rates decline with income, it must be true that the middle class get more FUTURE benefits than the rich from their tax dollars today. But the bottom line is that whoever has the most kids, regardless of income, benefits the most from the government. If fairness were a real thing, taxes would be based on your number of offspring, not your income.
I look forward to your disagreement.