Tag Archives: trust fund babies

“Trust-fund babies?”

President Obama and other politicians are advocating higher taxes, with a particular emphasis on class-warfare taxes targeting the so-called rich. This Center for Freedom and Prosperity Foundation video explains why fiscal policy based on hate and envy is fundamentally misguided. For more information please visit our web page: www.freedomandprosperity.org.


Are all those rich people born that way?

The Real “1 Percent”

by Michael D. Tanner

This article appeared in The New York Post on November 8, 2011.

So just who are those top 1 percent of Americans that we’re all supposed to hate?

If you listen to President Obama, the protesters at Occupy Wall Street, and much of the media, it’s obvious. They’re either “trust-fund babies” who inherited their money, or greedy bankers and hedge-fund managers. Certainly, they haven’t worked especially hard for their money. While the recession has thrown millions of Americans out of work, they’ve been getting even richer. Worse, they don’t even pay their fair share in taxes: Millionaires and billionaires are paying a lower tax rate than their secretaries.

In reality, each of these stereotypes is wrong.

By and large, the wealthy have worked hard for their money.

Roughly 80 percent of millionaires in America are the first generation of their family to be rich. They didn’t inherit their wealth; they earned it. How? According to a recent survey of the top 1 percent of American earners, slightly less than 14 percent were involved in banking or finance.

Roughly a third were entrepreneurs or managers of nonfinancial businesses. Nearly 16 percent were doctors or other medical professionals.

Lawyers made up slightly more than 8 percent, and engineers, scientists and computer professionals another 6.6 percent.

Sports and entertainment figures — the folks flying in on their private jets to express solidarity with Occupy Wall Street — composed almost 2 percent.

By and large, the wealthy have worked hard for their money. NYU sociologist Dalton Conley says that “higher-income folks work more hours than lower-wage earners do.”

Because so much of their income is tied up in investments, the recession has hit the rich especially hard. Much attention has been paid recently to a Congressional Budget Office study that showed incomes for the top 1 percent rose far faster from 1980 until 2007 than for the rest of us. But the nonpartisan Tax Foundation has found that since 2007, there has been a 39 percent decline in the number of American millionaires.

Among the “super-rich,” the decline has been even sharper: The number of Americans earning more than $10 million a year has fallen by 55 percent. In fact, while in 2008 the top 1 percent earned 20 percent of all income here, that figure has declined to just 16 percent. Inequality in America is declining.

As for not paying their fair share, the top 1 percent pay 36.7 percent of all federal income taxes. Because, as noted above, they earn just 16 percent of all income, that certainly seems likemore than a fair share.

Maybe Warren Buffett is paying a lower tax rate than his secretary, as he claims. But the comparison is misleading because Buffett’s income comes mostly from capital gains, which were already taxed at their origin through the corporate-income tax.

Moreover, the Buffetts of the world are clearly an exception. Overall, the rich pay an effective tax rate (after all deductions and exemptions) of roughly 24 percent. For all taxpayers as a group, the average effective tax rate is about 11 percent.

Beyond taxes, the rich also pay in terms of private charity. Households with more than $1 million in income donated more than $150 billion to charity last year, roughly half of all US charitable donations. Greedy? It hardly seems so.

Michael Tanner is a Cato Institute senior fellow.

More by Michael D. Tanner

And let us not forget the fact that the rich provide the investment capital that funds ventures, creates jobs and spurs innovation. The money that the rich save and invest is the money that companies use to start or expand businesses, buy machinery and other physical capital and hire workers.

It has become fashionable to ridicule the idea of the rich as “job creators,” but if the rich don’t create jobs, who will? How many workers have been hired recently by the poor?

No doubt dishonest or unscrupulous businessmen have gotten rich by taking advantage of others. And few of us are likely to lose much sleep over the plight of the rich.

But shouldn’t public policy be based on something more than class warfare, envy and stereotypes?

Cato’s Jeffrey Miron: “The liberal hatred of the rich is a minority view…”

Maybe the tide is turning. Americans do not hate the rich like liberals would have us believe. Take a look at this article:

Soaking the Rich Is Not Fair

by Jeffrey A. Miron

This article appeared on The Huffington Post on September 2, 2011.

What is the “fair” amount of taxation on high-income taxpayers?

To liberals, the answer is always “more.” Liberals view high income — meaning any income that exceeds their own — as the result of luck or anti-social behavior. Hence liberals believe “fairness” justifies government-imposed transfers from the rich to everyone else. Many conservatives accept this view implicitly. They oppose soak-the-rich policies because of concern over growth, but they do not dispute whether such policies are fair.

But high tax rates on the rich are not fair or desirable for any other reason; they are an expression of America’s worst instincts, and their adverse consequences go beyond their negatives for economic growth.

The liberal hatred of the rich is a minority view, not a widely shared American value.

Consider first the view that differences in income result from luck rather than hard work: some people are born with big trust funds or innate skill and talent, and these fortuitous differences explain much of why some people have higher incomes than others.

Never mind that such a characterization is grossly incomplete. Luck undoubtedly explains some income differences, but this is not the whole story. Many trust fund babies have squandered their wealth, and inborn skill or talent means little unless combined with hard work.

But even if all income differences reflect luck, why are government-imposed “corrections” fair? The fact that liberals assert this does not make it true, any more than assertions to the contrary make it false. Fairness is an ill-defined, infinitely malleable concept, readily tailored to suit the ends of those asserting fairness, independent of facts or reason.

Worse, if liberals can assert a right to the wealth of the rich, why cannot others assert the right to similar transfers, such as from blacks to whites, Catholics to Protestants, or Sunni to Shia? Government coercion based on one group’s view of fairness is a first step toward arbitrary transfers of all kinds.

Now consider the claim that income differences result from illegal, unethical, or otherwise inappropriate behavior. This claim has an element of truth: some wealth results from illegal acts, and policies that punish such acts are appropriate.

But most inappropriate wealth accumulations results from bad government policies: those that restrict competition, enable crony capitalism, and hand large tax breaks to politically connected interest groups. These differences in wealth are a social ill, but the right response is removing the policies that promote them, not targeting everyone with high income.

The claim that soaking the rich is fair, therefore, has no basis in logic or in generating desirable outcomes; instead, it represents envy and hatred.

Why do liberals hate the rich? Perhaps because liberals were the “smart” but nerdy and socially awkward kids in high school, the ones who aced the SATs but did not excel at sports and rarely got asked to the prom. Some of their “dumber” classmates, meanwhile, went on to make more money, marry better-looking spouses, and have more fun.

Liberals find all this unjust because it rekindles their emotional insecurities from long ago. They do not have the honesty to accept that those with less SAT smarts might have other skills that the marketplace values. Instead, they resent wealth and convince themselves that large financial gains are ill-gotten.

Jeffrey A. Miron is Senior Lecturer and Director of Undergraduate Studies at Harvard University and Senior Fellow at the Cato Institute. Miron blogs at JeffreyMiron.com and is the author ofLibertarianism, from A to Z.

More by Jeffrey A. Miron

The liberal views on fairness and redistribution are far more defensible, of course, when it comes to providing for the truly needy. Reasonable people can criticize the structure of current anti-poverty programs, or argue that the system is overly generous, or suggest that private charity would be more effective at caring for the least vulnerable.

The desire to help the poor, however, represents a generous instinct: giving to those in desperate situations, where bad luck undoubtedly plays a major role. Soaking the rich is a selfish instinct, one that undermines good will generally.

And most Americans share this perspective. They are enthusiastic about public and private attempt to help the poor, but they do not agree that soaking the rich is fair. That is why U.S. policy has rarely embraced punitive income taxation or an aggressive estate tax. Instead, Americans are happy to celebrate well-earned success. The liberal hatred of the rich is a minority view, not a widely shared American value.

For America to restore its economic greatness, it must put aside the liberal hatred of the rich and embrace anew its deeply held respect for success. If it does, America will have enough for everyone.