Contra Elizabeth Warren

A couple of months back, Elizabeth Warren made liberal hearts flutter when she offered the following defense of tax hikes on wealthier individuals:

I hear all this, you know, "Well, this is class warfare, this is whatever." No. There is nobody in this country who got rich on his own — nobody. You built a factory out there? Good for you. But I want to be clear. You moved your goods to market on the 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--and hire someone to protect against this*--because of the work the rest of us did.

Let me reduce this argument to its essence: "Our taxes paid for the infrastructure, human capital, municipal services, etc., that made your success possible. So, you have a debt to us...a debt that your current rate of taxation isn't sufficient to cover."

Let me now pull this apart, one plank at a time.

First, Elizabeth Warren is running for U.S. Senate. But the taxes that "the rest of us" pay to faciliate the factory owner's success are predominantly state and local taxes. After all, those taxes are the primary source of funding for local roads, education, police forces, and fire departments. So, the basic premise of Warren's argument might make sense--might, though I still don't think it does (see below)--if she were running for, say, a state or local office and were proposing to raise state or local taxes on upper income earners. In the context of a federal race and federal taxes, though, her argument is a non sequitur.

Second, even though Warren sets up a contrast between "the rest of us" and the factory owner, the factory owner is just like the rest of us in one respect--he or she also pays taxes. For all we know, he or she may have paid sufficient taxes to cover the marginal costs of all of the roads, education, police protection, and so on, required to run a successful factory. If that's the case, the factory owner shouldn't have to pay any additional taxes--not under Warren's logic, anyway.

Third, having interviewed or surveyed over 100 employers who hire entry-level workers, I can share with you one of their common complaints: Workers often come to the job without basic skills--"soft skills," math skills, reading skills, computer skills, etc. Because they didn't learn these skills in school, they have to be trained. By whom? By their employers, of course. So, shouldn't employers receive a credit against their tax obligations for any amount they have to spend on basic education/training? In other words, rather than the factory owner owing "the rest of us" for educating his/her workers, maybe the rest of us owe the factory owner for failing to provide an educated workforce.

Finally, consider a counter-factual: Imagine that for whatever reason, the factory owner decides not to build a factory, not to employ 100 people (just to choose a round number), not to pay them a daily wage, not to provide them with insurance, not to contribute to their retirement, etc. If those 100 people now have no place to work, who is responsible for them? You guessed it--"the rest of us." We have to pay the basic costs of their subsistence, unless we're willing to leave their care to friends, family, and private charity, something only the Ron Pauls of the world support.

That was just a counter-factual, though, that is, we would have to pay these subsistence costs if the factory owner hadn't taken care of that for us. But the factory owner did take care of that for us, thereby relieving us of the burden (not to mention conferring upon us all of the related economic benefits; for example, factory workers will spend their paychecks at the local Target and Wal-Mart, which allows those companies to hire additional workers in our community.)

I don't think Elizabeth Warren bothered to consider the value of the factory owner's contribution to the well-being of his/her employees. Had she done so, I think she might have found that "the rest of us" are in debt to the factory owner, not vice versa.

*If Elizabeth Warren doesn't realize that factory owners ALSO pay huge sums for private security and private fire loss prevention measures, she's probably not qualified to run for Senate.

Comments

[Michelle Oxman]

Oh, please. The factory owner gets benefits from the federal government, too. How much support has the federal government given to agribusiness, weapons contractors, the auto industry and drug makers? Federal subsidies, purchases and bailouts support all these industries. Who pays for the federal and interstate highways? Who bailed out the banks? And who sat on the money and paid big bonuses with those federal dollars?
Ms. Warren's example is a response to all the whiners in business who ccnstantly complain that high taxes and regulation are too burdensome. They're the same people who try to shift the responsibility for the damage they cause onto everyone else. We need environmental protection laws and agencies because manufacturers and power companies (among others) don't clean up after themselves unless the government requires them to do so. We need workers' coompensation laws because businesses don't compensate people for job-related injuries unless they have to.

[Special Agent Johnny Utah]

I'm hard pressed to think of any benefits a factory owner gets from the federal government...and I can think of LOTS of federal, state, and local regulatory requirements for which the factory owner must bear the cost, in addition to the normal costs of doing business. The federal government does make purchases, as you say, from weapons contractors and from drug makers (indirectly in the latter case), but those entities are providing something in return--namely, weapons that defend us and drugs that help keep us healthy. So, it's not as if defense contractors and drug makers should "owe" us something on top of that (other than the taxes they already pay). Yes, we all pay for federal highways through the gas tax, but the factory owner is already bearing the cost of his/her "extra" use of that resource through the fees he/she has to pay for transport of goods, which will include the cost of gas. Finally, yes, agriculture does get government subsidies, and yes, we did bail out banks and the auto industry...so, rather than assessing a higher income tax on wealthier individuals, which is what Warren is arguing for, why not make the argument for a higher tax on corporations in general, or on corporations or industries that have been recipients of federal subsidies?