Friday, December 30, 2011

Land of Opportunity vs. Land of Entitlement

Much has been written about income inequality in American and how it’s hurting our country.  We’ve heard all the examples where the CEO makes 800 times more than their minimum wage employees.  Despite the inappropriate use of two extremes to form an opinion, it’s hammered home, time and time again, as an illustration of income inequality in America.  Yet, despite the constant concern and identification of this inequality, the body politic doesn’t seem to have ideas on how to fix it, at least none that they are willing to say publicly.  
The populist cry of “tax the rich” seems to be the leader in the clubhouse, but we never hear exactly how that would work in practice.  How much can we actually raise from the “rich”?  How will the extra taxes be spent?  What will be the consequences of higher taxation on economic growth?  (Hint: it’s not good)  Will the tax revenues be used to provide more assistance to the poor?  Will it be used to pay our government workers more, even though they are already better paid than their peers in the private sector?  Will it get funneled back to government friendly unions and corporations like Solyndra?   
How exactly will higher taxes solve the income inequality problem? 
It won’t.

Politicians who are unable to conjure up relevant or rational solutions to the huge problems we face today are left trying to save their own jobs by scoring easy political points with populist “tax the rich” rhetoric.  Could the rich pay more in tax?  Sure, but it’s folly to suggest “tax the rich” is the golden ticket out of our mess.

If redistribution of wealth, via the all-knowing government, is the way to go, when do we stop?  What’s the right amount of income gap?  What's the right amount of taxation?  How do we know who doesn’t make enough, and who makes too much? 
How do we compensate different levels of knowledge, effort and experience required to fill one job vs. another?  What's the right amount of reward for indifference and ineptitude and what’s the right penalty for success and hard work? 

For example, where should Government, in its infinite wisdom, set the income gap between the following two Americans:
·         An individual who couldn’t be bothered to show up for or finish high school, spends $2,000 a year on cigarettes, gets hammered three times a week and stumbles between different minimum wage jobs because they are either too hungover or too lazy to report to work on time, if at all.
·         An individual who worked hard for good grades in high school, qualifying them for enrollment into a quality university, paid for with a combination of student loans, a work-study program during school, and a full time job during the summer.  After four years of good grades achieved through hard work and dedication, they get hired by a successful company where they deliver valuable results, again through hard work and dedication, including but not limited to extensive travel away from home and family, 60-80 hour work weeks, and numerous missed weekends and holidays.  After 20 years, all of that hard work culminates with a dream promotion to CEO and a salary of $1 million per year. 
Should they make the same amount of money?  Should the CEO pay for the slacker’s nicotine habit, 60” HD flat screen TV and HBO subscription through higher taxes?    
Is this an extreme example?  Of course, but our use of two extremes illustrates our point, while highlighting the absurdity of the public debate on the issue. 
It comes down to who we trust to “fix” the “problem” of income inequality.  Government or the free market?  The answer should be self evident, but the rhetoric suggests otherwise.  Government thinks it can solve this vague problem of income equality with an equally vague answer of “tax the rich.” 
For us the only solution is a robust and free economy that promotes and rewards hard work and innovation.  Only a robust private sector economy can provide full employment.   America is the Land of Opportunity where everyone, regardless of class, color or creed, can make their own success through hard work and dedication.  America is not the Land of Entitlement.     
Attempting to solve any income inequality problem by blindly taking from Peter in order to blindly provide Paul with benefits is not a sustainable model. 
Just ask Europe.


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