You didn't build those cabins!

Fiscal conservatism 103

In the last article ( I gave an example of two businesses, one run by private enterprise and the other by the government, both operating donkey rides up a mountain.

According to President Obama and Senator Elizabeth Warren, the business owner did not solely create that business. He didn't build those cabins. They were paid for by taxpayer funds, and therefore whatever taxes the owner is paying now simply isn't enough. He needs to pay more because his business would not exist without the government infrastructure of the cabins, the roads, the bridges, the police, etc.

If you remember the YouTube video of Elizabeth Warren talking about "you didn't build that," you might want to go watch it again. It is breathtaking. See our previous article with a link to the video here:

Here is President Obama expressing the same sentiment:

While it is true that almost all American businesses would not exist without society and the free-market system it provides, that doesn't mean that business owners owe their success to government.

In the donkey example, the owner saw an opportunity to create a business if he purchased donkeys and provided trips up a local mountain. Had the government not allowed use of the cabins (the infrastructure they are providing) then he would not have started the business. Instead, he would have started a camping business, taking tourists out into the woods and teaching them to hunt and fish. Or he would have gone back to school to study accounting. The point is that the business owner made a decision based on the information available that led him to start the business, with existing tax laws in place.

One of his considerations is the cost of taxation and what that takes out of profit. If the government tells him that the tax rate is 90%, do you think he would start the business? Of course not. As you move down from 90%, the odds of starting a new business increase. Let's say the business tax rate is 50%. Some will decide to go forward and take the risk, even at that high rate (which is about what it is, when you take into account all the federal, state, and local government taxes). It isn't fair to increase that retroactively to 60% because that skews the analysis made by the business owner in starting out in the first place.

Profitable businesses pay a percentage of their profit to the government. That is how our tax system works. They don't owe more than they are required to pay. That's why we have accountants--to pay exactly what is owed, and not a penny more. To claim that business owners owe their success to society and they need to pay more disregards what they are already paying, which by some reports is among the highest business tax rates in the developed world.

The argument that all business owners are underpaying because they are using society's resources is really bad logic. Under that reasoning, we might as well do away with private enterprise and just go to a fully socialist system where society owns everything and we all get paid the same no matter what we do, or even if we do nothing. We know those systems collapse.

Others have pointed out that business uncertainty also leads to inefficiency. With politicians like Obama and Warren in charge, many businesses are wary of hiring and investing because their cost of labor or their taxes might increase, which could put their entire investment at risk. So the marginal benefit of increasing their business is not worth the risk, so they wait. And that's one reason our economy is still somewhat stalled.

It's not just taxes. The push to raise the minimum wage achieves a similar purpose and has a similar effect. So do all the new regulations that some businesses are now dealing with. Unfortunately, our political leaders always make these changes apply to all existing businesses rather than new businesses; whereas when they try to reform public pensions, for example, they always do it for new hires. Current government employees are usually exempted from any changes to their "promises." What a double standard!

So my conclusions are that the business owner created his business and gets to keep the profit he makes after taxes, and owes nothing more to the government. And private enterprise will provide better goods and services than government workers who have different work motivations other than making customers happy and providing the best service. And that our goal as a capitalist country is to let the private marketplace do as much as possible and only allow the government to run things when it is a purely government function or for health/safety reasons, needs to be run by government.

The more we increase taxes and regulations, the more we will see fewer new businesses starting, less expansion, fewer high-paying full-time jobs, and more government subsidies and assistance to our people because they will need it. Is that how we are going to continue to lead the world?

When Obama ran for office, he hid his socialist tendencies from voters. He seems to think that the private sector can keep paying more and more because that's where the money is, and the government can keep spending because it allows itself to borrow whatever it needs. This house of cards is going to collapse.

For the next article in this series, on Jack Kemp, click here:

PART ONE (Introduction):



Subscribe to the Acton Forum and get our newsletters emailed to you -- FREE! Click on