18

Understanding “Fairness”

JANUARY 31, 1992

 

The probability is high that one week after Mr. Bush’s speech on the State of the Union not one voter in fifty will remember the salient parts, if it can be said that there were salient parts. It will all dissolve in partisan bifurcations, the Democrats talking about fairness, the Republicans about the need to get moving. Mr. Bush has said that if by March 20 his agenda is not enacted, he will declare war on Congress, presumably without congressional approval. If he pursues his threat, this time without the aid of 550,000 troops headed by General Schwarzkopf, there are those who would be grateful if he undertook to make certain clarifications.

On the whole matter of fairness, surely republicans and democrats (note the lower case) ought to insinuate into the public discussion the primary postulate of free economics, which is that what you earn is supposed to be yours, and that therefore what the government takes from you is an exaction. Democrats (upper case) have managed the rhetorical staging to the extent of suggesting that anything that is left to Joe Blow by the government is in the nature of a public gift, and Joe ought to be ashamed, if he is wealthy, of the money he is being given by the government.

It is increasingly difficult to hang on to capital in America, and it pays to remind ourselves that 25 percent of those who are classified as rich fall from affluence every year. It is as simple as this: The dollar earned, if it is a dividend, is first taxed to the corporation, reducing it to about 60 cents. Then it is taxed to the individual, reducing it to about 42 cents. It then reduces in value every year by the amount of that year’s inflation, on average about 5 percent, reducing it to 39 cents. Then, when you die, state and federal taxes will move in to the extent of about 65 percent, reducing it to 25 cents, less the cumulative inflation.

Lord Percy of Newcastle in his famous essay declared that it is the purpose of socialist policy to render property forever insecure. He might as well have been talking about Democratic Congresses.

Now on the matter of fairness we have a wonderful illustration before us of the duplicity of Democratic thought. It is everywhere conceded that the luxury tax on boats is going to be repealed. What!! Repeal the tax on the item most clearly associated with conspicuous consumption, luxury boats? Why, that luxury tax is a mere 10 percent of the sum over $100,000, so that, for instance, the luxury boat that costs $300,000 under the new law is taxed a mere $20,000. Big deal.

Ah, but it transpires that the boat-buying public has dug in its heels. Buyers have canceled boat orders, citing the burden of the tax. Others have closed the door on the visiting broker or salesman. And who are up in arms in the state of Maine? Why, boat builders. They are more numerous there, per capita, than in any other state. And they, most of them unemployed, want that tax repealed and don’t want any arguments on the subject. And guess who is going along on the repeal of that tax? None other than Mr. Fairness himself, George Mitchell. He is even willing to interrupt his filibuster against a reduction in the capital gains tax for just long enough to come out in favor of a repeal of the luxury tax.

But of course the reasoning of President Bush and of most economists (and of the legislatures of Japan, Germany, France, Canada, Sweden) reflects exactly what the boat builders of Maine have concluded—in the case of capital gains, extra inducements are needed in order to persuade Americans to risk their savings on entrepreneurial activity. In 1986, 600,000 companies were capitalized by Americans willing to take risks. During that decade twenty million new jobs were created.

Are we talking about fairness? Mr. Bush and his supporters should emphasize the two points, the first that governments should begin by being apologetic about the money it takes from those who have earned that money, and that it is an affront to the principle of equal treatment under the law to penalize Mary more heavily than John just because she earns more money. And second, the Republicans should stress that experience tells us every day the same thing the boat builders of Maine have learned—learning that has reached even the theretofore impenetrable mind of their senior senator—that marginal impositions act as drags on economic speed as surely as accretions on the hull of a racing boat guarantee to slow it down.