Taxes on the Rich. Programs for the Middle Class. Who’s Selfish?

With President Obama having now presented a new deficit plan,* the question of selfishness has been raised again.

The President, somewhat predictably, wants to raise taxes on the rich.  In fact, that was one of the biggest points in his speech:  Tax the rich.  They have lots of money; they aren’t paying their fair share; they should pay more taxes.  Interestingly, while President Obama talked about raising taxes on millionaires and billionaires, his plan is to raise taxes on families that earn more than $250,000.  Which means “millionaires” now means a married couple who each make $126,000 a year.

In any case, inherent in President Obama’s position is the view that, given the deficit and everything he wants to spend money on, it is selfish for the rich to object to paying more taxes.

But let’s try a thought experiment.  Say you are a taxpayer.  You have enough money to live comfortably, but you wouldn’t mind having a little extra money.  (Who wouldn’t?)  You could use it for a vacation, to eat out more often.  Whatever you wanted.

A politician comes along and says that people need more “X” and that the government ought to provide it for them.  And that the government can pay for this new program by raising taxes on people who already have lots and lots of money, i.e., the rich (because at some point, isn’t there just a limit to how much money they need).  If this proposal passes, you will have more money because the government will be providing you something for free that you would otherwise have to pay for.  In other words, you can vote to get something free from the government, which means you will be able to keep more of your money to spend on other things – and your taxes won’t go up because somebody else will pay for it. 

Consider a concrete example:  New Zealand will be having an election later this year.  The Labour Party is “promising to extend paid parental leave and make Working for Families more generous for parents of under-2s”.  So, if you have a new-born or if you are planning on getting pregnant in the near future, you can vote yourself money by voting for Labour.  You will clearly get more money from the government than you would have to pay in higher taxes, assuming you even had to pay any extra taxes.**

So what is selfishness?  Is it the rich person not wanting to pay higher taxes or is it the middle class person voting to tax the rich more so he or she can get more government services and have somebody else pay for it?  In other words, who’s selfish?

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* It was “new” in the sense that it was different from what he presented in the budget he proposed two months ago, even if it really wasn’t much of a “plan” because of the lack of specifics.

** In considering this policy, understand that New Zealand’s Working for Families program provides benefits to families with children, even where the family’s income is way above the median family income in New Zealand.  For example, families with two children receive a “Working for Families” benefit if their income is less than NZ$91,227 (US$71,942), and families with five children receive a benefit as long as they earn less than NZ$146,757 (US$115,733).  Since New Zealand has a median household income of NZ$64,445 (US$50,821), this program is clearly not just for poor people.

Comments

[Tiger Woods]

In addition to selfishness,a recent study showed that "jealousy" is also a big reason that people think the "rich" should be taxed more.