The legend of Robin Hood has been part of English-speaking culture for five centuries. For the last two, he has been celebrated as a hero for “robbing from the rich to give to the poor.”
Why celebrate such flagrant thievery? What kind of example is this for a nice, thoroughly-capitalistic society to hold up for its youngins to enjoy? We all know the answer. We know it’s okay for Robin Hood to steal because the aristocrats in the story were abusing their stations–milking the system, if you will–in order to hoard wealth even as the commoners who worked their lands and fueled their economy were starving.
These days, there’s a lot of talk about raising taxes on the rich. Actually, it’s not even so much “raising” taxes as that the recently reelected President Obama wants to let some tax cuts expire for the wealthiest segment of the U.S. population. And in response to these suggestions there has been a chorus of complaints from certain sectors of our society.
The president is suggesting we should, according to these voices, punish success. It’s nothing short of socialism! Theft! The wealthy have worked hard for their money, and they deserve to keep it!
Let’s get it straight, though. It’s not “hard” work we’re talking about here. Hard work is not what makes you rich in America.
Case in point, let us say there is a woman, perhaps a single mother, working two or three minimum wage jobs to support her family. She is undoubtedly working hard.
But her hard work will not get her rich. It won’t even earn her a coveted spot in the middle class.
Now, for contrast, let’s say that another hard-working individual dedicates his or her efforts not to minimum-wage labor, but to an entrepreneurial endeavor. She opens a restaurant or invents something. She has a smart idea for the marketplace and runs with it.
She might get rich.
So America doesn’t reward hard work. It rewards smart work.
As it happens, economic analysis shows that that entrepreneur and her start-up is, if successful, likely to create a very healthy kind of economic activity for society as a whole. Start-ups, in fact, contribute disproportionately to job creation. Yes, small businesses are the true “job creators.”
So, as a society, we can recognize that this kind of smart work should be given special status in our tax code–encouraged and incentivized–because it strengthens the economy as a whole. She hires people. They spend the money they earn from her out in the market, driving further economic activity through something economists call “the multiplier effect.” It’s a win-win.
Thus the great parable of the American Dream is explained and clarified for a new age. Come to America, work
hard smart, and you will prosper.
Well, not so fast.
Let’s go through an alternate scenario. Let’s say our smart person is already gainfully employed by some big corporation. Now her smart idea is going to make the company a whole bunch of money. True, she might rise up the ranks. She will probably do well for herself inside the juggernaut of whatever corporation employs her, but the wealth created by her idea does something very different than it did in the entrepreneur example.
For one, the jobs created–if there are any–might pop up on an assembly line in China or be outsourced somewhere else in the developing world. The pittance paid out in labor costs there will not have a multiplier effect here in the U.S.
What’s more, the profits themselves will not go to her. They will benefit the stockholders. Especially the big stockholders. Yeah, those guys are probably already rich. So this wealth that resulted from somebody’s smart work will flow into the vaults of capital instead of back into the economy. You see, dollars earned by lower and middle class families tend to get spent, driving demand in the market and keeping the economy healthy. But dollars earned by the wealthy have much smaller multiplier effects because they often just get invested back into the stratospheric realm of high capital–the shell game that almost destroyed our economy in 2008.
This all drives wealth inequality and undermines the middle class. And here’s the funny part: that’s bad for the rich, too. When the bottom dropped out in 2008, it was a crisis of demand. The more the wealth of the nation becomes concentrated in the hands of a few, the more the foundation of demand that keeps the economy chugging along is undermined.
Therein lies the logic of taxing the highest earners. The system needs us to. They even need us to. In the long run, this flow of wealth upward will bite them in the backsides, too.
So Obama’s suggestion is not to rob from the rich. Their wealth does not arise in a vacuum. They’re benefiting from a system–everything from the rule of law to infrastructure to political influence from lobbyists they hire–that has set the stage for their imbalanced accumulation of wealth. Adjusting the tax rate is just a systemic correction of that imbalance. Not punishment. Not socialism. Not theft.
Just good sense.