Tuesday, January 12, 2010

"It's Not 'Your' Money": So Good It Deserves Repeating

by Ian Welsh
You also didn’t earn most of it.

It seems like every time I discuss taxation, some libertarian will waltz in and say “it’s my money and I don’t see why the government should be able to take it.”

So let’s run through why, no, it isn’t your money. We’ll start with two numbers. The income per capita for the US in 2005 was $43,740. The income per capita for Bangladesh was $470.

Now I want you to ask yourself the following question: are Bengalis genetically inferior to Americans? Since not too many FDLers think white sheets look great at a lynching, I’ll assume everyone aswered no.

Right then, being American is worth $43,270 more than being Bengali and it’s not due to Americans being superior human beings. If it isn’t because Americans are superior, then what is it?

The answer is that if it isn’t individual, it must be social. On the individual but still social level, Americans are in fact smarter than Bengalis because as children they are far less likely to suffer from malnutrition. However not suffering from malnutrition when you’re a baby, toddler or young child has nothing to do with you and everything to do with the society you live in and your family–two things you have zero influence over (perhaps you chose your mother, I didn’t.)

Bengalis won’t, on average, get as good an education. They won’t get as much education either, since every child is needed to help earn a living as soon as possible. For most Bengalis there’s no room for having the extended childhood and adolescence westerners are used to, which often stretches into the late twenties or even early thirties, amongst those seeking Ph.D’s or becoming doctors or lawyers.

When a Bengali grows up the jobs available aren’t as good. If he or she starts a business it will earn much less money than the equivalent American business. If he or she speculates in land and is very successful, they will still be much less rich than an American would be.

One could go on and on. I trust the point is obvious — the vast majority of money that an American earns is due to being born an American. Certainly the qualities that make America a good place to live and a good place to make money are things that were created by Americans, but mostly they were created by Americans long dead or they are created by all Americans working together and are not located in the individual.

Now the same is true of the really rich. Forbes keeps track of the world’s billionaires, and almost half of them are in the US. This is because US society and the US government in particular, is very set up to create billionaires. Your odds of being a billionaire take a massive jump if you’re born in the US. Your odds of being a billionaire if you’re born in Bangladesh? Essentially zero. Now one could point out that billionaires are still so rare that the odds are always essentially zero (how many billionaires in your circle of friends?) Nonetheless the US in 2005 had 371. Germany, with the second most, had 55.

Bangladesh, you won’t be surprised to hear, had zero.

If you’re a billionaire in the US, you’re a billionaire in large part because you live in the US.

So, if you’re American, a large chunk of the reason you make a lot of money (relative to the rest of the world) is that you are American. The main cause of your relative wealth is not that you work hard, or that you’re innately smarter than members of other nations (though you may be since you weren’t starved as a child). It’s because you had opportunities given to you that most people will never had, and those opportunities existed due to the pure accident of your birth or because you or your family chose to come to the US. The same is true of most first world nations.

Immigrants understand this very well. There’s a reason why Mexicans, for example, are willing to risk death to cross the border. Their average income is $7,310, compared to the US average income of $43,740. They won’t make up all the difference just by crossing the border, but they’ll make up enough that it’s more than worth it. They haven’t personally changed, they don’t work harder now that they’re across the border. They aren’t smarter and they aren’t stronger. They just changed where they lived and suddenly the opportunities open to them were so much better that their income went up.

So let’s bring this back to our typical Libertarian with his whine that he earned it, and the government shouldn’t take it away. He didn’t earn most of it. Most of it is just because in global terms, he was born on third and thinks he threw a triple. That doesn’t mean he doesn’t have to work for it, but it does mean most of the value of his work has nothing to do with him (and Ayn Rand aside, it’s almost always a him).

Now what a government is, in a democratic society, is the vehicle that the population as a whole chooses to use to organize collective action. Government is, imperfect as it is, the closest approximation to the “will of society” that we’ve got.

Since the majority of the money any American earns is a function of being American, not of their own individual virtues, the government has the moral right to tax. And since those who are rich get more from being American than those who are poor, it also has the moral right to take more money from them.

More importantly than the moral right, it has the pragmatic duty to do so. The roads and bridges that government builds and maintains; the schools that it funds, the police and courts that keep the peace; the investment in R&D that produced the internet; the sewage systems that make real estate speculation possible, and on and on, are a huge chunk of what makes being American worth so much more than being a Bengali. Failure to reinvest in both human and inanimate infrastructure is like killing the golden goose, and America, for decades now, has not been keeping its infrastructure properly maintained, let alone building it up.

And money itself is something that government provides for its people. It’s not your money, it’s America’s money and it’s a damn good thing too. If you don’t believe me, try issuing your own money and see how many people accept it. Some will, because what money is, when an individual issues, is an IOU. I’ve written a few in my life. In every case the person I gave it to was less happy to receive it than he would have been to get some nice crisp dollars. And I rested my IOU’s on dollars — I promised to repay in my country’s currency. If you don’t want to do that you’d have to issue an IOU saying “I will repay you with a bundle of rice” or gold, or a service. And then you come to the question of enforcement (one thing even libertarians admit the government should do) because what if I refuse to meet the conditions of the IOU. Even an IOU is based on the sanction of the government, if it isn’t it’s worth only as much as the good will of the person issuing it or the strong arm of the person holding it.

So no, it isn’t your money, and it’s a good thing it isn’t. And while you may have worked your butt off for it, you also didn’t earn most of it. The value you impute to yourself “I’m worth my 80K salary” is mostly a function of where you live, of where you were born and of who your parents are.

(Originally published Feb 9, 2008.)

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