In 2008, President Obama argued that a successful person should share their wealth with those less fortunate. Apparently, this argument failed because earlier this week in Texas he changed the debate by stating, "If you've been successful, you did not get there on your own."
He continued by claiming that there were teachers, police officers, road construction workers, and other public sector workers that helped this person achieve success. Therefore, this argument supports his policy proposal of raising the tax rate on entrepreneurs to share their wealth with public sector workers who contributed along the way. This appears to be his new rhetoric for his old mantra of income redistribution.
Problems with this political rhetoric exist primarily because public sector workers do receive compensation for their contributions to successful people. To put it simply, it is a pay-as-you-go system similar to Social Security and Medicare. Money is not in an account and saved for a specific person; instead, individuals receive these funds today and future generations pay for future beneficiaries. Thus, President Obama would like successful people to pay higher taxes because they owe those who supposedly helped them on their path to success, but in fact, that money will not go to any of those individuals who helped along the way.
If we look at the data from tax revenues from different income groups in 2009, we find that successful individuals in the top 1% of income earners paid 37% of all federal tax dollars, so they definitely contributed to those who "helped" them out. However, the bottom 50% of income earners pay less than 3% of all federal tax dollars, meaning that those who President Obama considers "failures" paid very little to these public sector employees.
The use of income inequality to make policy choices is obvious, but the president's new debate hits at the argument's core: success versus failure. In a capitalist economy, the foundation of success is risk and risk provides either success or failure. When the rules of the game are the same for everyone, everyone has the opportunity to succeed. According to President Obama, if a person owes their success to public sector workers, income redistribution should compensate everyone the same.
If the risks and rewards are redistributed, what about when the risks become failures? In other words, if a person takes risks and fails, should we blame the public sector workers and redistribute their income to those who fail? Claiming that upper and lower income people did not get there on their own suggests that redistribution should occur between those who have succeeded and failed.
For example, a teacher has an excellent student who goes on to have a successful career and becomes part of the top 1% of income earners, which would be a dream for many teachers. It may seem reasonable for the student to give a share of their income to the teacher for the teacher's contributions to the student's education—success redistribution. However, a teacher may have a lazy, uncaring student who goes on to be a failure—not my definition—and be part of the lower 20% of income earners. It may then be reasonable for the teacher to pay this individual because the teacher contributed to the student's failure—failure redistribution.
Many Americans are not upper income individuals, but are not failures either. The president's argument should not be part of the national discussion because it is nothing more than political rhetoric. Entrepreneurs get to where they are by relying on signals from market prices that are dependent on numerous people. The government sector does not provide these signals, and typically distorts them, so it is unlikely that this sector contributed to successful people.
Some argue that raising taxes on the rich might solve our federal budget deficit crisis, but this will cause more problems because any additional tax dollars raised will go to other government programs, or to redistributive purposes instead of paying down the deficit. In fact, if the Bush tax cuts expire for the two top tax rates, estimates indicate that tax revenue would increase by $1 trillion over the next 10 years, which averages to only $100 billion per year and reports indicate that deficits will average $700 billion in that time frame. Therefore, this is not a cure for government's excess spending and does not take into account the side effects of these higher taxes.
Instead of implementing this false choice of paying down the deficit through higher tax rates, Congress should reform the tax code by implementing a flat tax—preferably the FairTax, broadening the tax base by abolishing loopholes and deductions, and lowering government spending to solve the budget crisis.
In conclusion, redistribution will neither help the economy to restore the willingness for entrepreneurs to take risks and boost job creation in a sluggish economy nor solve the budget crisis. Just because someone is in a lower income group does not make him or her a failure. Like beauty, success and failure are in the eyes of the beholder. Despite President Obama's new rhetoric of class warfare, let us not go down the path of success versus failure redistribution.