Focus on the Ill-Gotten Gains of the Rich Instead of Their Tax Rates

President Obama's rhetoric about wealthy entrepreneurs is unfair to some and insufficiently harsh toward the subset he's most likely to know.

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Do rich entrepreneurs owe their success to their own efforts or the commonweal? James Joyner has a good answer. "Of course nobody got rich totally on their own," he writes. "Of course the fabled 'job creators' rely on the infrastructure we built collectively, whether it be roads and bridges, an educated workforce, relative safety from crime, a reasonably functional judicial system and what have you. But those building blocks were in place for those who didn't get rich, too, so of course those who did deserve the lion's share of the credit for the fruits of their labor."

That sounds more sensible to me than what President Obama said, and I'm presuming the charitable interpretation of his remarks. Consider an enterprise like this one. The Internet began as a government project. It's indispensable to every digital business. In that sense, it is true that the owner of and its many employees didn't make it a successful enterprise alone. But the same infrastructure was available to my former colleagues at Culture11, a web magazine that ran out of money, and to those who've never started an e-business. Failed entrepreneurs didn't do it on their own either.   

Being part of American society creates an obligation on the part of profitable enterprises to pay taxes. It is prudent to set tax rates high enough to balance the budget and maximize returns to infrastructure. There are strong arguments for a progressive tax code. But the truism that successful enterprises didn't do it on their own isn't itself a sound argument for their paying more. With equal access to the shared physical and legal infrastructure of the U.S., successful businesses performed better than the competition and risked more than those who never entered it.

They're entitled to the gains that result.

President Obama's alternative formulation is flawed in two ways. Julian Sanchez best articulates one of them. We obviously need to "do things together" to succeed, he acknowledges.

But as Aaron Powell and Jason Brennan rightly ask, why should we assume that "we" and "together" has to mean "through government"? Why can't "we" do things "together" by ... well, forming businesses? Clubs? Civic organizations? Churches? If we're assigning credit for past achievements -- and implicitly, the debt we owe for them -- why the federal government and not, say, our fellow citizens directly, or state and municipal authorities, or the whole of humanity engaged in mutually enriching global trade? Of course, there are solid arguments why certain things we build together -- roads, for one -- will generally not be adequately supplied unless we do them through government. But as Aaron Powell points out, if we limit ourselves to these kinds of examples, we arguably end up with a pretty libertarian conception of government.

Questioning why shared projects should be accomplished via the federal government is a particularly pertinent question in an era when it funnels so many tax dollars toward Wall Street bankers, Blackwater mercenaries, and the Orwellian infrastructure of the Transportation Security Administration. While getting groped at the airport I've never seen one of those signs that say, "Your tax dollars at work," but I never forget who is paying the hand that creeps up my thigh.

The skeptical reader might by now be thinking that lots of rich people don't in fact deserve their wealth. They're absolutely right. And progressives like Barack Obama would better serve the country's interests if they focused on preventing ill-gotten gains from being got. These illegitimate gains mostly spring from the fact that wealth makes it easier for people to game the system. As Joyner says, summarizing an argument made by his co-blogger, "the rich got there either by direct rent-seeking or by indirect government subsidies like intellectual property protection."

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Conor Friedersdorf is a staff writer at The Atlantic, where he focuses on politics and national affairs. He lives in Venice, California, and is the founding editor of The Best of Journalism, a newsletter devoted to exceptional nonfiction.

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