Rich versus poor

Fiscal conservatism 106

Hundreds of years ago, the rich people were members of royalty and inherited their land and wealth. Ordinary people could be given wealth based on their connection to the King and "working" for a living would rarely make you rich. The King was presumed to own just about everything.

So if you weren't born to royalty, the way you became successful long ago was probably your ability to ingratiate yourself to the royal family.

There were performers or artists who worked for the King and would get paid upon the King's pleasure. Many of the greatest painters were attached to a royal court. Same as musicians. Actors who worked their trade were taking a vow of poverty.

These days, many of the "rich" are in the same professions in which historically only the top 1/10th of 1% ever made any money. Artists, musicians, actors, and even professional athletes can become multi-millionaires or even billionaires because fans can watch TV, watch a movie or purchase a song. These decisions are being made by millions and millions of people worldwide rather than a handful of people in a royal court.

What underlies this, of course, is our collective wealth. When most Westerners make $25,000 or $50,000 or more a year, and don't need it all for the necessities of life, they have a lot of disposable income. If they watch TV, listen to music, go to a movie, or attend a sporting event, they are helping to support the uber-rich artists and sports figures (i.e., "entertainers.")


A recent poll reported in today's Wall Street Journal (8/7/14) said that women believed that Democrats were the better party to address issues like minimum wage and income inequality.

But when Oprah Winfrey is worth a billion dollars, how is that inequitable in today's world? She has millions of people who have contributed an average of $100 each by watching her TV show or going to her movies. All of those interactions were voluntary and gave each one of her viewers more than $100 in entertainment value (otherwise they would have switched the channel.) She publishes a successful magazine and only those who pay $20 a year (or whatever it is) get it. What's wrong with her being rich? And how has "the poor" been harmed?

When a society is rich and has disposable income, it seems to me that greater income inequality is inevitable. It isn't the result of "robber-barons" stealing from the poor to give to the rich. Instead, it is about poor and middle-class people spending their disposable income a little bit here, a little bit there, and then having a class of people who directly benefit from this spending pattern. Those are the people who fulfill the wants and needs of a broad section of society. These are entertainers, sports figures, and people who provide goods and services to the public (entrepreneurs).

Remember. Hundreds of years ago, the entertainers were the poorest amongst us, with useless skills. Only the top one percent could even earn a living. Now, entertainers are among the richest members of our society because normal people can each effectively contribute to their wealth. They are beneficiaries of changes in technology and society and the creation of a middle-class.

So let's assume you are with me so far. Today we have super-wealthy entertainers who earn millions of dollars and that is fine. They are doing nothing wrong, they are providing services, and everyone who pays is doing so willingly and gets value from their purchases.

And we have very successful business people who provide similarly needed goods and services to society, but who also employ lots of people to help them. These business owners and entrepreneurs have been singled out by some of our politicians for ridicule. Let's take a look at their function in our society today.


The factory owner "who didn't build his factory" is earning money the exact same way as the entertainer, except the goods they are providing are physical rather than emotional (entertainment.) But in the same way, they are selling widgets at $1 each and millions of people are buying them. Like entertainers, there are many widget-makers and only the best ones will become super rich. Some will just become rich, and some will make a living. The ones who make the worst widgets (or who have the worst voices) will have to switch professions because no one will buy their widgets or their songs.

In a socialist economy, bureaucrats determine the winners and losers, not the people ("consumers"). Corruption and inefficiency can become rampant when decisions are made on the bases of factors other than individual purchasing decisions. A "committee" deciding economic winners and losers does not maximize personal return on investment compared to people making their own decisions based on their wants, needs, and desires.

It is my belief that an entrepreneur who makes a billion dollars is just as deserving as an entertainer who does the same. Both are providing goods or services for which willing buyers turn over some of their income and receive a benefit to them which is at least as great as the money they spend. So what is wrong with someone being very successful at providing things that people want to buy?

I believe the "factory owner" or the successful businessperson is a much better role model for our society than the top entertainer, and should not be vilified by the likes of President Obama and Senator Warren. The reason is that the opportunity to be successful (or very successful) is open to many times more of society's members.

The odds of becoming a super-successful artist or sports star are slim to none, but making a lot of money in some type of business is within just about everyone's potential reach.

Yet you don't hear our top political leaders complaining about the success of our entertainers and sports figures. All they talk about is how (they believe) our society is transferring wealth from the poor to evil business owners. But that isn't an accurate portrayal of these economic changes.


Capitalism works because of competition. That drives new products and innovation. People compete to provide goods and services that others wish to purchase, which creates a trillion "win-win" transactions and therefore improves peoples' lives to the maximum extent.

Too much competition forces the weak players to withdraw because eventually you oversaturate the market. If you have 10,000 singers releasing 10,000 songs every day, only the top few will make any money. So the free market limits the number in each competitive category based on the number of available buyers.

There is a finite number of songs that a society can purchase, which means there is a finite number of singers it can support. Likewise movies, likewise sports teams, likewise widgets.

But the number of potential "business owners" far exceeds the number of potential "entertainers." That is because there are thousands of products that one could produce, and "songs" are just one of them. So the opportunity to make a ton of money in business is probably 10,000 times more likely than to make money as a professional athlete or singer. Therefore, our society should be encouraging business entrepreneurship rather than denigrating it.

Most young people who do well will end up in a business venture. The best may make a lot of money as owners or managers. And the business community can easily grow to absorb future workers. But a successful singer is not dependent on population. They don't care if there are a million or a billion downloads. So as our population grows, we are much less likely to need more singers or baseball players, but we will need more fast-food managers and clothing stores and landscapers.

Who does more for society overall--the Burger King owner with 100 employees or the super-successful singer with a handful of employees, or the super-successful app writer with no employees? Do we want to penalize the Burger King owners by increasing their costs, making it harder for them to be successful, and possibly causing their restaurant to close and all their workers to lose jobs? Or should we be encouraging entrepreneurship as the best way for most people to become financially successful?

By targeting business owners with things like raising the minimum wage, our political leaders are doing more to hurt long-term economic growth than any short-term gain that some employees will receive. Many of our future "business owners" start out as workers earning minimum wage. Increasing minimum wages just might cost the job of the next Ray Kroc, the founder of McDonald's. (And, of course, raising minimum wages does not create overall wealth, it just purports to shift money from owners to low-wage-earners. But when you subtract off the possible loss of jobs through firings, lack of hiring, and businesses that close, it is dubious this has an overall beneficial effect.)

Not everyone can be a top app writer, a top singer, or a top baseball player. But almost anyone can run a successful business and there are thousands of different skills that can be used depending on the type of business. Many of these people start out as minimum-wage employees where they learn the business, learn skills, and see if it is a good match for them. If we make it harder and harder for these people to make it, we are actually hurting the long-term prospects of America, and perhaps making it harder for future generations to live "the American dream."

In my view, income inequality is not a bad thing. It is a natural outgrowth of wealth and so many people having so much disposable income. And to single out the people who are providing jobs and opportunity for others (business owners), versus people who are achieving riches because of lucky changes in society or technology (entertainers), is unfair.

Let's celebrate our American successes, whether it is sports stars, actors, app creators, factory owners, or Burger King franchisees. Let's make sure that anyone can choose any career and make sure that there is the possibility of success if they excel at it. And most important, let's make sure that the culture of business entrepreneurship is celebrated and supported by our policies, not vilified and hobbled by our politicians.

Next, FC 107:

Previous articles in this series:

PART ONE (Introduction):






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Some Thoughts

I really don’t know where to start so please forgive the stream of consciousness of this post. As always, I’m at a loss to explain how we observe the same events and reach such different conclusions but I suppose that is what makes life interesting (and politics so difficult).

The ironies of the Charles Koch piece are staggering. Charles Koch’s father, Fred Koch, was one of the founders of the John Birch Society and their primary philosophical stand is opposition to communism (ironic since Fred made his fortune building oil refineries for Stalin in the 1930s, but let that go). I doubt the John Birch Society is full of racists but I do know that they spent much of the 1960s trying to discredit Doctor King and his message by attempting to link him to communism and communist groups. For Fred’s own son to use Dr. King’s words to support his political agenda today strikes me as disingenuous but Dan Quayle used to go around quoting John Kennedy so we will let that go too.

Koch rails against rampant cronyism but there are few families in U.S. history that have spent more of their personal fortune attempting to influence government policies to the advantage of their own closely held corporate interests. Of course, this is all perfectly legal now that the Supreme Court has concluded that money is speech and corporations are people with political rights (Citizens United) and, now, religious rights (Hobby Lobby). But let all of that go too.

Koch also rails against government regulation and claims that it is creating a part time economy. Again, he has every right to try to advance his political ideas but that does not absolve USA Today from same basic fact checking. Mort Zuckerman tried to make a similar argument in a WSJ editorial a few weeks ago by saying that all of the employment growth under Obama had come in part time jobs (and the WSJ also dropped the ball on basic fact checking). As the saying goes, they are entitled to their own opinion but not their own facts.

The Labor Department has two classifications for part time work: people who work part time because they want to and people who work part time because that is all they can find. The BLS tracks this through what is called the household survey (same survey that produces unemployment rates, etc.) and BLS calls the “latter group “part time for economic reasons”. The group of people that are “part time by choice” has been remarkably stable over time, hovering between 18-20 million, closer to the low end during the boom and closer to the higher end during the financial crisis. With a bifurcated age distribution (75 million aging baby boomers now between 50-70 years old and 80 million millennials now between 15 and 25 years old), it would be reasonable to expect that the part time by choice group might be growing.

The group that is part time for economic reasons surged from December 2007 to March 2009 (i.e. in the last year of the Bush administration, the first year of the recession), increasing from 4.5 million to slightly more than 9 million, and has slowly been declining since then, falling from slightly more than 9 million to about 7.5 million today – still quite elevated from pre-crisis levels but moving in the preferred direction. Since the beginning of 2010, total employment from the same household survey has increased by more than 8 million (more than 9 million from the survey of establishments). There is simply no basis in the data to conclude that all or even most of the job growth over the past several years is part time – total employment has increased by 8 million while non-choice part time employment has decreased by 2.5 million. Even including the roughly 2 million person rise in part-time by choice, we still have a slight decline in part-time employment during a period of significant increase in total employment. More importantly, the surge in part time employment happened while Bush was still president. By what possible logic was this caused by excessive government intervention in the market place by Obama?

(Happy to send you the raw data if you want or you can get it off the BLS website yourself )

With respect to voter IDs, you cite the need to have an ID to board a plane or drive a car. Leaving aside that study after study finds no credible evidence that voter fraud exists at measurable levels, the constitution tells me that I have a right to vote by virtue of having been born here (or made a naturalized citizen). The same birthright simply does exist for other activities where we require an ID. I would argue that the government has the burden of proving that I am not a citizen if they want to deny my right to vote or, at the very least, the government should assume the burden of providing me with an ID rather than putting that burden on me. I suppose you will counter with a question about why we require people to have a firearm ID and I will concede that inconsistency to you and will fully support any American’s unfettered right to own muskets as the founders intended.

Finally, to the central point of your “rich versus poor” post, I think I agree with you (but you won’t be happy with the reasons). Entertainers and athletes have just as much responsibility to pay their taxes and contribute to society as any other successful group and I imagine that the President and Senator Warren would agree if we could ask them. I have watched and re-watched the videos of Warren and Obama where they used the “you didn’t build it” rhetoric and I have re-read the transcripts many times and I don’t find them to be disparaging of entrepreneurs or business people at all. Here is what Elizabeth Warren said word for word:

“There is nobody in this country who got rich on their own. Nobody. You built a factory out there - good for you. But I want to be clear. You moved your goods to market on roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn't have to worry that marauding bands would come and seize everything at your factory... Now look. You built a factory and it turned into something terrific or a great idea - God bless! Keep a hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.”

As Oliver Wendell Holmes said, taxes are the price we pay for civil society and I think Warren is just arguing for a more progressive tax system (as an aside, the first progressive income tax law in the U.S. was signed by Lincoln in 1862 to fund the Civil War and the highest marginal tax rates in U.S. history were during the 1950s and 60s and the economy did quite well). Most people think we already have a progressive tax system in the U.S. but many don’t understand that effective marginal tax rates actually go down as incomes moves into the stratosphere. The most obvious example is the withholding tax for Social Security which only applies to the first $117,000 of income this year. Not to pick on Mr. Koch, but he owns 42% of Koch Industries which reported sales of $115 billion last year. I don’t know what his officially reported income is but I can safely say that his marginal withholding rate is zero.

More importantly, as individual incomes rises significantly above what any normal person would think of as very high levels, a greater and greater share of that income typically comes from dividends and capital gains and both of these sources of income are taxed at much lower rates than wage income (income earned by actually working, the activity that we are trying to encourage). As an aside, in contrast to Mr. Koch, most high income athletes or entertainers would normally pay very high marginal tax rates as most of their income from playing sports or entertaining would be labor income.

Not to pick on him, but this is why Mitt Romney’s effective tax rate at the time of the election was shown to be less than 14%. Most of his income did not come from actually working (again, the behavior that we all seem to want to encourage) but rather came from his investments. Romney was also shown to have tax deferred IRA accounts worth over $100 million that were funded by putting shares of companies he acquired into the accounts when those shares were worth very little and then selling them within the IRA as their values rose and re-investing within the IRA into other assets. Perfectly legal but hardly what IRAs and other retirement accounts were intended for and certainly a government benefit far beyond the reach of all but a few.

As we all know, much of Romney’s fortune came from his work at Bain Capital where a lot of his income was treated as “carried interest” and only taxed at 15%. Carried interest is an interesting quirk in the tax code whereby hedge fund managers and private equity investors take a percentage of their investors’ profits as a fee (typically 20% of the profits) and that fee is treated as if it was their own personal capital invested in the funds from the beginning of the fund. Again, a nice piece of government largesse for a very fortunate few but for some reason we don’t view this type of “taking” behavior the same way as we view someone taking welfare or food stamps.

The Koch brothers are lucky, they were born into a wealthy family (again, because their father was clever enough to build oil refineries for Stalin - I guess we should be glad he made his fortune off of someone else’s government instead of ours) and, to their credit, have grown their initial fortunes into staggeringly larger fortunes (each brother is estimated to have personal wealth in excess of $50 billion). Perhaps they would have been equally successful if they had been born at another time and in another place but the odds are low. An important study at Johns Hopkins which followed the same group of children in Baltimore for 30 years has found, not surprisingly, very clear evidence that initial starting point is the single largest predictor of future success. If you are fortunate enough to be born into a stable family with financial resources, you are far more likely to be successful in life. Yes, some extraordinary individuals are able to overcome the handicap of not being born into a good situation and we should applaud (and support) them. But they are the outlier, not the norm. And none of us has any control over when and where we are born. My children or your children could just as easily be one of those poor children from Central America who are risking their very lives to escape the circumstances of their birth. Conservatives celebrate risk taking by entrepreneurs but condemn the much greater risk taking of these children and their families. More importantly, if randomness of birth is a major factor in future success, why wouldn’t we progressively tax that success and redistribute it those who did not have the benefit of a similar starting position? We won't ever eliminate the differences and I don't think we should even try. Not all of the difference in outcome is due to differences in starting points - some people really are more clever or do work harder than others and deserve to be rewarded.

You say you support the value of hard work. I share that value and I think most Americans agree. Yet we have a tax system that drastically favors capital accumulation over labor. We tax income generated by labor at far higher rates than we tax income generated by capital and, as I have said before, when you tax something you get less of it. Folks on the right will immediately counter by saying that the capital was already taxed when it was earned. That is correct and I am not arguing for taxing the capital again, just the income that the capital generates. I would even support eliminating the corporate tax altogether if labor income and capital income were taxed similarly. Unfortunately, now that corporations are people, I doubt that we can eliminate their taxes .

Apologies for the long post. Hope you summer is going well!


Response to Michael re: Koch Op-Ed and Rebuttal

Hi Michael,

Thanks so much for your detailed post. I appreciate the time you took to write it, and I think you have expressed your ideas well.

For anyone reading these posts, you may want to read below first as they are in response to another reader's post and my reply.

Michael, you won't be surprised to hear that I disagree with most of what you write. I, too, am perplexed that two intelligent and reasonable people can have so many fundamental disagreements. This is one of the things that mystifies me about politics, but maybe you and I can debate this down to a point where one of us will capitulate and all will be right with the world.

1. The Koch Family connection.

You can't argue that sons are responsible for what their fathers do. So the premise of these remarks are faulty.

You also argue the point about Koch quoting MLK Jr. You seem to quickly dismiss this argument with a joke, that Dan Quayle would quote Kennedy.

I really don't understand why using a philosophical opponent's argument and own words "against them" (well, against their modern allies) is wrong, unless the thoughts or words are taken out of context. Perhaps you can explain that logic to me.

I have read quotes of JFK saying that tax cuts help businesses to grow and he in fact pushed some tax cuts through Congress. Now I'm no Kennedy expert, but if we accept that as true, then why would it be out-of-bounds for Conservatives to cite Kennedy's words and actions in this regard, especially when they argue for tax cuts?

MLK argued that people should not be judged on the color of their skin, so why can't that be used as an argument against affirmative action?

The bottom line here is that attacking people because they want to quote their political opponents' own words against them is not reasonable, in my view. It is a cheap shot, it is like an "ad hominen" attack by saying they are being disingenuous because somehow they are misquoting, but in fact they may not be misquoting at all, and in MLK or JFK's cases that I've cited, I don't think I am misquoting them.

2. Spending money to influence legislation.

You claim that the Kochs have spent money to influence legislation or government spending, and somehow that is wrong, illegal, immoral, or not consistent with their attacks on "crony capitalism."

I think you have this completely wrong. Let me try to explain.

In our legal system of checks and balances, you can't fault a defense attorney for doing whatever they need to to clear their client (even clients who they think are guilty). That is how the system works.

We have a legislature and we have a whole army of lobbyists. That is all within the law. If the Kochs wish to hire lobbyists, that is lawful behavior.

There is nothing wrong with them doing so, even if they are against more government spending. What prevents it from being "crony capitalism" is that they are not getting no-bid contracts or government contracts from friends which circumvents the procurement process.

Here's what would be wrong: If someone is a supporter and fundraiser for the Democratic Party and donates millions of dollars to the Party and then gets a no-bid contract for research and development of solar panels for millions of dollars, and then goes bankrupt and loses a billion taxpayer dollars.

One of the things that Conservatives believe prevents this is a system of checks and balances and, of course, limiting the ability of the government to be engaged in risky activities like this which are better done in the private sector. That is why many Conservatives argue against these programs, because they can become corrupt.

Despite appearances, there is nothing wrong with someone arguing against these subsidies and then applying for them if they are eligible. Otherwise, you would have to argue that "First Amendment" freedoms should not be protected (i.e., you can't publicly argue against something and then ask for money for it, which would be clearly discriminatory), or that somehow businesses would be barred for competing for government contracts because of their political beliefs.

Let's say you are a solar panel manufacturer and you are against government subsidies. If your competitors are getting them and you aren't, then you will go out of business. That clearly would be unfair. So even if you argue against having them, you must compete for those subsidies if they are available.

I don't want to beat a dead horse here, but I hope you understand and agree with my point. Punishing someone like Koch with not giving him government contracts when he is philosophically against them would be unfair and "un-American."

By the way, this has nothing to do with the recent Supreme Court decisions. They are separate issues. We can have a mini-debate on Hobby Lobby if you want, but that is outside the scope of this discussion in my view.

3. In this point, you want to argue facts, which is fine. As you know, "facts" can also be spun and distorted, so let's see if we can agree on the facts about employment and unemployment.

First, let me correct something right up front. It isn't the job of "USA Today" to do "fact checking." These are not "news" articles, they are opinion pieces, and they are signed. If someone writes something that is wrong, other readers can submit their rebuttals. I would be mortified if every opinion piece had to be run by the (mostly) liberal editors of the major newspapers in America.

Part-time for economic reasons/Part-time by choice.

Certainly, some people choose to work part-time. You say that this number has been stable at around 18-20 million. Here is my first question to you: over the period of time (you didn't indicate what period), are these the same people?

If not, then some people may have been fired and others may have been hired in new jobs created as part time with workers who want part-time work. I can tell you that as a (very small) employer, I greatly prefer to hire "part time by choice" workers in part-time jobs. Why? Because they will be satisfied to continue in part-time work indefinitely. If I hire "workers who want full-time" but are willing to accept part-time, they may leave if offered other full-time employment, which will cost me money to rehire and train a new employee.

So there is a gross error in logic in your reasoning, and this is before I even go to the website to look at the statistics. You are assuming that "stability" in numbers means these are the same people, and that clearly is not necessarily so. It is possible that what you see as stability is actually job loss of work (part time as well as full time) and replacement with part-time by company choice with people who want to work part-time. That would support Koch's argument.

There is another argument which I won't get into because this is getting too long already, but that is the concept that a f/t job equals another f/t job. Just counting "full time" or "part time" jobs is not really a good measure of the economics involved. If we have 100 auto workers making $30 per hour who get replaced by 100 fast-food workers making $10 per hour, employement has remained constant in this metric.

So then I went to the BLS website and searched for your term "part-time by economic necessity." Up popped the following chart:

The U-6 number (I'll use Seasonally Adjusted columns) shows July 2013 of 13.9% total unemployment, which includes the "part-time by economic necessity" numbers with an official unemployment rate of 7.3%. That means the difference for the other categories is 6.6%. (If you want just "part-time by economic necessity, it is 13.9 - 8.7 or 5.2%).

In 2014, same month, we have 12.2% total unemployment, official unemployment rate at 6.2%, for a difference of 6%. (Just part-time by economic necessity is 12.2 - 7.5 or 4.7%.)

So using your measurement criteria and your website, the official unemployment rate went down from 7.3% in July 2013 to 6.2% in July 2014, a drop of 1.1, or about 15% (1.1% divided by 7.3%).

The decline in the number who dropped out because of economic necessity went from 5.2% to 4.7%, or a drop of 0.5, or about 10% (0.5/5.2).

So that means that unemployement among regular workers fell more than unemployment for those working part-time because of economic necessity.

So this means that part-time workers who cannot find full-time work has decreased, but decreased less than overall unemployment. (A 15% drop is greater than a 10% drop). Therefore, relatively speaking, there are more part-time workers by economic necessity as a percentage of unemployment now than a year ago.

Now perhaps there are other years or other time-periods you would like to examine, but if the very first example from your source disproves your hypothesis, then I think that is good enough for me to say your point is probably mistaken.

As a final thought on this, I'm sure you can glean information from the BLS website that tends to support this or that theory as to what is happening. But I believe the harm to our society from things like increasing the minimum wage are very hard to quantify, and especially hard to trace back to one act. Perhaps unemployment is being affected by the weather. Proving cause and effect is very difficult.

But that is why "talking philosophy" is so important. Doesn't it just make sense that raising the minimum wage is going to put more money into workers' pockets but also cause some of them to lose their jobs and stifle job creation? Why can't we just agree that this makes sense and then decide what policies we want given these assumptions, rather than having each side bending statistics to try to prove something which is constantly changing and for which "cause and effect" are extremely hard if not perhaps impossible to ever prove?

3. Voter fraud.

I discussed this in my response as a quick example of why asking voters for ID is not an unreasonable burden, but you have expanded the discussion so let me respond.

First, I don't buy the argument that we need to have proof of fraud before we take action to prevent it. How many people have "fake IDs" and try to board a plane? I have no idea. Are there studies on this? Do we have "proof" that this would be a rampant problem? I very seriously doubt that anybody has bothered to study "how often passengers on U.S. airlines attempt to board a plane with a fake identification." So then why are we asking for ID to board a flight? (I also think such a study would be a waste of time because even if the incidence of fraud were low, I'd want everyone's ID to be checked as a matter of policy, just as I do for voting.)

We ask because it is reasonable to do so. It protects other passengers. It perhaps discourages people from trying to commit fraud. It makes people confident that someone is checking and that fraud is not occuring. It sets people's minds at ease and gives them confidence that the system is safe and working.

You might think that nobody is fraudulently voting, but if it reassures (many) Americans that it isn't occuring by checking ID, shouldn't that be the default position?

Now, if someone doesn't have "ID" perhaps we can find a compromise that is fair and reasonable, doesn't prevent people from voting, and allows the public to have confidence that there is not fraud going on. Perhaps we have "provisional" ballots that are only verified if needed in a close election. Perhaps we accept forms of ID that would be difficult to get unless a massive fraud was being perpetrated (which hopefully we would have other tools to catch.) So maybe showing a utility bill from your place of residence, and checking that off against the voter list would be sufficient. I'm sure we can come up with something that doesn't make it impossible for poor people who can't afford an ID to vote and still satisfy those who are concerned about this issue.

Now let me ask you a question. Surely you must agree that someone can be concerned about this, even absent "direct evidence" that fraud is taking place. We have so many people who live among us that are not eligible to vote that voters could be reasonably concerned. Why won't you admit up front that the concern is reasonable and real? I think it would be OK for you to agree that this is so, and still argue that some forms of ID would be difficult for some to obtain, and maybe we can then search for a solution. Maybe the government can send a letter to all registered voters and if the recipient gets the letter, they can use that as proof (and the election official can take a photocopy of the letter to investigate any allegations of fraud that may later be made).

I find it very strange that "the left" can completely dismiss this valid concern by saying there is no proof, and make it sound like anyone who questions this is racist. Don't you agree that this issue has unfairly become so polarized?

Now all that being said, you claim that there is no evidence of voter fraud. As I said, I don't think we need evidence of fraud to have voters show IDs, but I did an internet search and here is the very first hit:

If you read the article, it quotes statistics like you cite, and then explains them. It also shows matching names in border areas where people could have easily voted twice without detection.

I'm not saying this is a widespread problem, but I have concerns and these concerns are reasonable to have, just as I would have concerns about people driving without a license or flying without an ID.

4. "You didn't build that."

Well, let me start with the point that everybody on earth has taken their comments to be attacks on private entrepreneurship...except you. You say that after several viewings and readings of their comments, there is nothing disparaging of entrepreneurs or business people at all.

You then go on to quote them. The first thing out of Warren's mouth is an attack on private enterprise. "There is nobody in this country who got rich on their own. Nobody."

So do you agree with this statement?

What does it mean to "be rich?" It means that lots of people (or a handful of other rich people) paid you money for something you gave them of value. Unless someone was robbing banks or engaging in other illegal activity, then everybody had to get rich with the purchases made by others.

Let's start off with talented singers. A singer writes a song, goes into a studio and records it (paying her own recording fees.) She then sends it to radio stations who love the song and start playing it. Then people contact iTunes and purchase the song at 99 cents and millions of people do this. Now how did this singer not achieve this success on her own?

Well, someone had to build the road on which the studio sat. Someone had to hire firemen in case the studio caught on fire. Someone had to build the water ditch that services the studio's sinks.

I hope you can see that this argument against the singer "doing it on her own" is stupid. If you still don't agree, look at the corollary argument. Would this exact same song ever be written and performed without the singer? No.

Or are you arguing that the buyers of the song made the singer rich. If that is your argument, then Warren and Obama are right, because no one can print their own money. Therefore...what? We have a full communist state where the state owns everything and we all work for the state. I hope that isn't your logical conclusion.

The case of the factory owner is obviously more complicated but the basic argument on my side is the same with one modification. Every type of service that "society" contributed to the factory was paid for by the factory owner one way or the other--local, state, or federal taxes...sales taxes...fees...etc.

In a free market economy, people are entitled to the fruits of their ideas and their labor. The fruits are not the property of government or society. Yes, a reasonable tax is owed to help cover government overhead, but more than that is not owed.

If you want proof that 99% of Americans agree with that, look at the tax returns and how many people check off the box to make a voluntary contribution to the government. Very few, for very little money. People pay what they calculate they owe and not a penny more. And there is nothing wrong with that.

Warren then goes on to argue some sort of "pay forward" proposal. I guess this is her way of saying that paying your taxes is just not owe not just your current taxes but you owe extra taxes (or fees) to pay for future generations.

But why would that be so? If Congress wanted that to be part of the tax code, they would have done so. The taxes are what they are, and you don't owe more than you calculate you owe.

I think perhaps Warren is arguing that whatever is paid does not fully compensate society and that more is owed...maybe not financially and legally, but morally. And if you believe that, then you believe that you should pay more than you calculate, which I've already rejected.

5. Marginal tax rates.

Let's try to devise a fair tax system together.

How about for every $1 you earn, you pay the government 25 cents. How does that sound?

Well, first of all, if you only earn $1 a year, can you even afford to part with 25% of that? Perhaps not. So we start by introducing an exclusion up to a certain level of income. All of the "poor" people in America are eligible for this exclusion and pay no federal income taxes at low levels of income.

So you start off by saying that we really don't have a progressive system when in fact we do. Is it as "progressive" as you want? Obviously not. But that is very much subject to debate, so I will continue.

You then argue that to be truly progressive, taxes need to continue to rise according to income levels.

Now, as a member of society, you have a duty to pay your fair share. But what does that mean?

In one system, we could have a tax based on the average amount that society paid to support each individual. Let's say that is $500 per year (it is more, this is just for example.)

Now we've already conceded that the person who makes $100 per year won't pay any taxes because they are too poor.

What about the person who makes $1,000,000 a year. What should they pay?

There is a perfectly good argument that they should pay $500, plus perhaps a small override based on covering those who do not pay.

It doesn't cost society any more to provide police, fire, roads, and bridges to the millionnaire as it does to the hundredaire. It is perfectly reasonable to have a progressive system for the poorest and then a flat system for the middle class to wealthy.

But we don't do that either. We have higher rates for higher incomes, and we have an "alternate minimum tax" which ensures that the very rich pay a certain percentage of their income no matter what their deductions.

So for income, the rates start off at zero, then go to 15 or 20 percent, then go to 30 or 40 percent. The super-rich pay taxes at this higher rate for all of their income.

All of the above are facts and that is a progressive system and it is fair. Someone paying 40% of their million-dollar income is paying a heck of a lot more for government services than they consume, and they help fund the millions of people who pay nothing or less than their fair share.

Now, let's talk about unearned income.

I will make up an example. Let's say I make a million dollars and pay my 40%. And then you are my friend and I decide to give you a gift. Instead of giving you a job for which you have to work, I give you the interest on my bank account. That "earns" you say $50,000 a year.

Our tax system is setup to tax labor, not earnings from things like bank accounts. Bank account earnings are taxed at a much lower rate. Why? Because if they weren't, no one would put money in a bank. So in order to encourage savings and a healthy banking system, we encourage people to save their money in a bank and we reduce the taxes for interest earned. (As I said, I am making up this example. If you find there is some error here, just change "interest income" to "dividend income" and I'm sure the same example would work.)

Now, if you think interest should be taxed at the same rate as labor, take it up with Congress. If they made that change, everybody would probably switch to something else and nobody would have community banks or could get local loans for buying a house or a car. So society does benefit from this tax law even if it isn't obvious.

So when you bring up somebody like Romney who earns money through non-labor endeavors and you complain about their low tax rate, you are making a mistake in logic. You are equating "earned income" with "unearned income" and they are not the same thing, nor should they be taxed at the same rate.

My last point is your final dig at Mr. Koch, who owns 42% of his inherited business which had $115 billion in sales last year. I'm sure Koch employs thousands of people, and I'm sure "sales" do not equal "profits." But otherwise, who cares? Every dollar Koch earned was through a free-market process that provided at least that amount of value to Koch's buyer. What business is it of yours (unless you are an investor in his company) whether he makes money or loses money? It simply doesn't concern you.

So long as his company pays the taxes as Congress requires, he is free in our system to earn as much as he can, which means he is maximizing his value to others.

Let's say Koch Industries was the only and sole provider of the world's "pet rock" supply. That's all they did, and they did it well. Millions of people bought pet rocks all over the world and they sold $115 billion of them last year. How does this negatively impact you?

Frankly, I am a bit baffled at why you think the rich owe more than Congress has determined they pay. Several times you seem to bemoan the fact that the law doesn't require them to pay more. Well, your friends Obama and Warren want them to pay more, and to prove it, they claim they are not paying enough. I don't think the benefits they got from society should require them to pay more, but ultimately it is up to Congress to make those decisions. But certainly up until the law changes to force higher payments, they are acting lawfully and should not be criticized for paying too little when they just pay what is owed.

You say several times that Koch or Romney are not working, and isn't that the behavior we are trying to encourage? I hope you are joking here, but if you are not, I guess I should respond. Koch and Romney are so rich they don't need to work. Work is not a requirement, it is an opportunity to exchange labor for money for which you can buy other things. If you are rich and don't need to work, then don't work. But if you are poor, the way to climb out is to work to become rich. I can assure you that somewhere in Romney's or Koch's past (or their relatives, if they inherited their money) there was an awful lot of work that was done to earn that money.

But let me stop you from doing research. In a free-market economy, we don't need to determine how that money was earned. Assuming it was lawful, it simply isn't our concern (so long as they paid taxes on it.)

6. You go off on your last point about how people become rich, where you start off in life, etc. To me, sure, it is partly luck. But it is also your parents and it is well known that parents who invest in their children produce more successful offspring. So if you want the poor to blame their lack of good luck on their parents, I would agree with you. But otherwise, I don't see why rich people would need to apologize for the "investments" their parents make to help them succeed. That is what (good) parents are supposed to do.

And yes, I guess we are lucky that we aren't the children who were born in Central America and are making risky trips to the U.S. But that isn't relevant to immigration law or whether the U.S. should let illegal immigrants into the country.

I wish I was 50 pounds lighter. What does society owe me because I am not? Nothing. Countries have borders and they have citizens and the citizens have an absolute right to close their border to outsiders. I honestly don't think that is debatable. You can argue that we should have "open borders" and I know your man in the White House agrees with you, but until the law changes--or until President Obama manages to circumvent the law--we should follow the law and stop the flow of illegal immigrants immediately and deport those who came her without permission as soon as possible.

It sounds like you have empathy for these children (and mostly adults) who are trying to come here illegally but our law is clear and the steps our President is taking to break the law are also clear.

I am working on a column on this topic now, and may post it this weekend, so we can continue the discussion there if you wish.

Have a good weekend and thanks again for your thoughtful response.


Allen Nitschelm has lived in Acton since 1998 and writes about fiscal issues at the
local and state level. He is a former member of the town's Finance Committee
and is an Associate Publisher of Acton Forum.

Two articles-one supports and one opposes Allen's view

While I think Allen makes a few valid points, the overall reality I see differs dramatically from his. So I tend to see the second article below as much closer to the reality we live in.

Note that I am a small business owner and I also work full time for a large multinational corporation.

The rebuttal by Riestenberg is terrible

Hi Kurt,

Thanks for the links. The article by the Koch guy was excellent (I think I actually read it in the Journal when it appeared, because it sounded very familiar) and the rebuttal was complete trash.

Riestenberg does not present logical arguments. Let me go into some detail since you seem to think the second article is closer to the truth.

1. Riestenberg starts by attacking Koch for quoting Martin Luther King.

MLK was no saint. Everything he did was not perfect. But he had several messages that he wanted to get across. Today, some of those messages would be considered racist against blacks.

For example, he said that people should be judged on the basis of the content of their character and not their skin color. How does our society do that today, 40 years later, with affirmative action?

He then does a personal attack based on his poor assumptions about someone being "a member of" a group.

If you are a member of the John Birch society, that makes you a racist? Give me a break.

I would offer as a counter example that the Ku Klux Klan was a Democratic Party group and that the Republicans under Lincoln freed the slaves. Does that make every Democrat a KKK member? Of course not.

Last on this point. Look at the personal attack he makes on this guy. Many liberals like to do "ad hominen" attacks because anyone who disagrees with their thinking must be a bigot, racist, sexist, etc. It is not a convincing argument if you look at it objectively.

Anyone who supports a law like "Voter ID" is a racist. Why? Because minorities cannot get IDs and therefore won't be able to vote. Yet IDs are required for lots of things...are all such requirements racist? If someone wants to collect public benefits, take a plane trip, or drive a car, don't they need an ID?

So right off the bat, this critic violates several principles in good debating, but I continued to read against my better judgment.

2. This makes it sound like Koch does not want to use the phrase "minimum wage" because the critic implies he is cowardly and afraid to do so. Why doesn't he just say "minimum wage?"

But in one of the links in the article ("Costly programs, such as paying able-bodied people not to work"), the article links to a column titled "...Welfare pays more than minimum wage..." so clearly Koch is not avoiding referring to minimum wages being a problem.

So this is another example of a hidden "ad hominen" attack. But even the underlying premise is false.

There are many government impedements to hiring people, with minimum wage being just one of them. When writing, sometimes you make broad statements to encompass the underlying philosophy. What Koch is arguing is that the government provides disincentives for employers to hire workers. That is a true statement. The fact that he didn't say, in parentheses, 'like minimum wage laws, mandatory unemployment insurance, union protections, minimum benefit requirements like the new health insurance programs, workman's comp insurance, etc.' is not a valid criticism of the argument. We all knew what he meant, didn't we? Koch doesn't like government control over these things and he might be happiest if there was no government control (but he doesn't say that either. Should Riestenberg call him out for this lack of forthcoming too? And then argue that Koch's call for no laws would lead to anarchy, etc? And therefore Koch is an anarchist?)

3. The critic argues that Koch references two "right-wing" think tanks that he financially supports and does not disclose that fact.

I don't know what causes or sites Riestenberg supports or doesn't support, but this also smells like another "ad hominen" attack. I guess Riestenberg really has one agenda, which is to personally attack this guy and just keep doing it, rather than actually debating what he says.

I'm sure that being a major donor and on the board of some conservative think tanks would make one very familiar with their work, which is probably why Koch quoted them. Maybe he was being lazy and should have found other groups to quote, but I don't think this is a valid rebuttal point. This sounds similar in logic to his "John Birch" argument.

Meanwhile the critic references in his article several "left wing" groups to back up his points. He cites "the Center for Media and Democracy" in one, he refers to the "Economic Policy Institute" which has as its motto "Research and Ideas for Shared Prosperity."

Then he refers to research by the "Center on Budget Priorities and Policies," another far-left think tank.

But he criticizes Koch for pointing to organizations that support his background philosophy. That inconsistency makes Riestenberg...a hypocrite.

(And I guess that's an "ad hominen" attack but I'm now just taking a page out of this guy's own playbook.)

Clearly, this is an example of the critic not having valid rebuttal points and looking for anything to criticize.

I also have to point out a small logical inconsistency. The critic admits that no one knows what Koch donates, yet he "controls" these boards and their research on "misguided" free-market arguments. His whole point is therefore invalid.

4. This is what is called a "Straw Man" argument. The critic asks a question, assumes he knows the answer that Koch would give, and then goes ahead and criticizes the answer.

My guess is that Riestenberg didn't want to say "One Major Problem with Charles Koch's Op-Ed" so he scraped the bottom of the barrel to invent five.

Fiscal conservatives do not "hate welfare." We believe that welfare provides a disincentive to work (Koch says that), and that ideally it should be temporary, to help people get back on their feet.

But fundamentally, we do not believe that the government should provide "full employment" (which I guess is what the critic wants, based on the reading), because "government" should be employing as few people as possible to get the work of government done.

I wonder whether the critic would find any fault in the concept of generations of Americans living on welfare?

I won't presume to answer that question.

5. Now we come to an actual logical argument, and I believe the underlying question the critic raises is one that we should debate.

If America is the land of opportunity, does everyone have a chance to participate?

In a free-market economy, the market determines winners and losers. I go into this in a lot of detail in my series.

There are some people who are going to be janitors. That is the extent of their ambition, their schooling, their training, their intellect, their work-style, etc. No one "forces" anyone to be a janitor. But if you go to college, the odds of your becoming a janitor are slim (unless you find the work relaxing, you like to work nights and weekends, or you have a cleaning fetish.)

The "American Dream" does not mean that everyone becomes as rich as Koch, who inhereted his wealth, the critic reminds us. (This guy really can't stop with the personal attacks, can he?)

What it means is that the government does not control that--it is up to the individual and the marketplace. And that potential, despite all the negative government interference, is still there.

For some people, this could mean earning $100,000 a year, having a house, a dog and three kids, and enjoying a good middle-class life. Most people around the world would see that as "the American Dream," not being super rich like Koch.

Note how the critic doesn't say, but instead implies, that "working your way up" used to be true but today is achieved by few people. That is false, unless you assume that you need to be a multi-millionnaire.

If "low paying jobs" have little chance of "making it," that is because upward mobility is being hampered. Who is causing that and why is that happening?

Would the critic then agree that we should remove these impediments to upward mobility that are causing our economy to remain listless, in order to provide more opportunity for our workers? Both Koch and I would agree. And that, I think, is the central point of Koch's article.

Hey, maybe Koch and his critic have more in common than I thought.

Allen Nitschelm has lived in Acton since 1998 and writes about fiscal issues at the
local and state level. He is a former member of the town's Finance Committee
and is an Associate Publisher of Acton Forum.