Forcing ‘the rich’ to pay more is an empty public policy

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Not long ago, Warren Buffett promised raising taxes on the rich would boost the morale of the middle class. Thanks to the New Year’s “fiscal cliff” deal, the rich’s taxes have gone up, but consumer sentiment isn’t showing any signs of improvement. The attempt to channel the emotion of envy for electoral advantage can work for some politicians, but the effects are usually temporary.

A little envy can be a good thing if it means admiring high-achievers and striving to emulate them. Envy earns its status as one of the seven deadly sins when it seeks to bring the successful down a peg or two. French Socialist President Francois Hollande famously said, “I don’t like the rich” and enacted legislation raising France’s top tax rate to 75 percent, suggesting he is guilty of the sort of envy that seeks solace in the sufferings of others.

British economists Daniel Zizzo and Andrew Oswald conducted an experiment to explore this phenomenon. In a paper published in 2001, they described how the test subjects were granted a certain amount of cash and then won unequal amounts in a computerized gambling game. After the game, each participant had the opportunity to pay a fee in order to reduce the other participants’ cash holdings. Two-thirds of them willingly did so even though it made them poorer in the process.

This is the innate feeling politicians tap into when they seek the support of Americans to raise taxes on the rich even if such actions would harm the economy.

For some, a feeling of resentment sets in when they believe the more fortunate didn’t earn their riches. In her address to the Democratic National Convention last summer, now-Sen. Elizabeth Warren tapped this feeling when she insisted that “the system is rigged” in favor of the rich and against the middle class. “Billionaires pay lower tax rates than their secretaries,” declared the Massachusetts Democrat. “And Wall Street CEOs — the same ones who wrecked our economy and destroyed millions of jobs — still strut around Congress, no shame, demanding favors, and acting like we should thank them.”

Pulling the successful down may make some feel better about their current financial circumstances, but it does nothing to actually improve their situation. When reality sets in, those good feelings prove to be hollow. The most envious among us attempt to avoid reality by continuing to push for higher taxes, dissatisfied until there is a 90 percent or even 100 percent top levy, at which point the government would take in no revenue because the wealthy would have no incentive to work as the government takes away all of their earnings.

President Obama calls his hikes “tax fairness.” That’s code for envy, or envy appeasement. Instead of giving in to that most harmful and destructive of human emotions, public policy should seek to promote the American dream, where everyone has a chance to succeed. Instead of tearing others down, government should encourage more people to risk their capital, work hard and join the ranks of the high-achievers. Entrepreneurship, not taxation, creates prosperity.

The Washington Times

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