Over the past few years, I have watched examples of Elizabeth Warren’s plain speaking and her willingness to stand up for the downtrodden with admiration. However, a recent quote of hers has got me to thinking, and now to writing. Here’s the quote:
“There is nobody in this country who got rich on his own. Nobody. You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did. Now look, you built a factory and it turned into something terrific, or a great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.”
It makes for a great soundbite, but I have to disagree.
Ms. Warren’s central thesis seems to be that every successful business somehow owes society some kind of a debt. Sorry, but… no. It sounds quite altruistic and wonderful, but business doesn’t work like that. A business owes:
- Its suppliers (for the goods and services they provided)
- Its creditors (for loans outstanding)
- Its employees (the agreed salaries and benefits)
- Its customers (the goods and services promised)
- Its shareholders (a share of the profit)
The person who built a factory took a huge risk, investing their time, money and treasure to build the business instead of finding a nice safe job with a steady paycheck working for someone else like the rest of us. We did not take that risk. Neither did the government. And yet Ms. Warren believes that we are somehow entitled to a share of the reward.
Most businesses fail within the first five years. But against the odds, this one succeeded, they employed people; from the factory workers to the truck drivers to the sales force to the managers – and all of those paid taxes. The workers were already educated — and if they weren’t, many businesses offer educational grants, internships etc. to grow the skills they need. The Police were most likely already on the payroll.#The roads, the infrastructure that Ms. Warren mentions were almost always already in place; if they required special roads or rail-heads to be built specifically for them, she might have a case. But otherwise… no. Also, Ms. Warren failed to mention that the infrastructure benefits the rest of us as well; we, the people, drive on the roads too — roads which, by the way, are paid for by Gas Taxes (assuming the Government aren’t misdirecting the funds). So her “no-man-is-an-island” theory falls kind of flat.
But let’s say she’s right – the business should be taxed more. But taxation does not occur in a vacuum, it has to come out of someone’s pocket. And when the tax bill arrives, it means that some money won’t get spent elsewhere. So the owner/manager has two ways to make that happen; cut back on expenditure (cancel the new plant or maybe fire some employees) or raise prices. And that’s where it all falls down.
This is a classic example of “Small-pie” thinking; that there is a fixed amount of money, and when somebody makes a dollar, somebody else has to lose one. In the real world, this is simply not true; most businesses create value where there was none before. And that is what makes the economy grow.
Should the rich pay more taxes? Perhaps, though I believe that the problem is not the tax rate, but the myriad loopholes that the gang-of-mostly-lawyers that we elected put into place. But so should some of the 51% of taxpayers who pay no income tax – and half of those pay negative tax (they get money FROM the government, at the expense of the rest of us). After all, they enjoy roads, markets, products and services as well, so why shouldn’t they pay their “fair share”?
At the other end of the economic scale, Warren Buffett may complain that he pays less tax than his secretary… but I didn’t hear anything about him writing out billion-dollar checks to the Treasury. He didn’t fire his accountants — the ones who are paid to look for loopholes — either. And Bill Gates is saving lives by the thousand across the globe. I wonder if he would be doing that if we had taken some of his earnings “for the greater good”.
Looking at Ms. Warren’s bio, it seems to me that she has never worked in the “real world”, and this kind of “Ivory Tower” thinking now makes sense. If she had invested years of her life building a business in the real world, perhaps her opinion might be different. But she is, after all, running for election to a Senate seat.
There is a grave disturbance in the Force. Ms. Warren, your roots are showing.
And they’re Socialist.
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