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  • Paying Higher Taxes Can Be Very Profitable (rerun)

    Posted by David Foster on April 14th, 2010 (All posts by )

    (I originally posted this on Jan 2….given that today is April 14, it seems like an appropriate time to run it again)

    Chevy Chase, MD, is an affluent suburb of Washington DC. Median household income is over $200K, and a significant percentage of households have incomes that are much, much higher. Stores located in Chevy Chase include Tiffany & Co, Ralph Lauren, Christian Dior, Versace, Jimmy Choo, Nieman Marcus, Saks Fifth Avenue, and Saks-Jandel.

    PowerLine observes that during the election season, yards in Chevy Chase were thick with Obama signs–and wonders how these people are now feeling about the prospect of sharp tax increases for people in their income brackets.

    The PowerLine guys are very astute, but I think they’re missing a key point on this one. There are substantial groups of people who stand to benefit financially from the policies of the Obama/Pelosi/Reid triumvirate, and these benefits can greatly outweigh the costs of any additional taxes that these policies require them to pay. Many of the residents of Chevy Chase–a very high percentage of whom get their income directly or indirectly from government activities–fall into this category.

    Consider, for starters, direct employment by the government. Most Americans still probably think of government work as low-paid, but this is much less true than it used to be. According to this, 19% of civil servants now make $100K or more. A significant number of federal employees are now making more than $170,000. And, of course, the more the role of government is expanded, the more such jobs will be created, and the better will be the prospects for further pay increases.

    If one member of a couple is a federal employee making $100K and the other is making $150K, that would be sufficient to allow them to live in Chevy Chase and occasionally partake of the shopping and restaurants. But to make the serious money required to really enjoy the Chevy Chase lifestyle, it’s best to look beyond direct government employment and pursue careers which indirectly but closely benefit from government activity…which are part of the “extended government,” to coin a phrase.

    Lobbying, for example. And this has been a very, very good year for lobbyists. Which was practically inevitable. The more the government micromanages the economy, the more having friends in Washington becomes a key success factor–maybe the key success factor–for every business in the country.

    The great expansion of government’s role is also very good, and for the same reasons, for lawyers whose practice is focused on regulation. Ditto for executives of trade associations, which typically exist largely to represent the common interests of the industry in governmental forums.

    Trial lawyers, of course, benefit from Obama/Pelosi/Reid and their unwillingness to do anything to rein in the more predatory excesses of that industry.

    Much of the federal government’s thinking, as well as day-to-day operations, is now outsourced to various consulting firms and “policy” nonprofits. Executives of these firms, including the “nonprofit” ones, often make far more money than even the highest-paid direct government employees. And higher government spending means more contracts and more opportunities for promotions and raises.

    One of the best ways to make serious money in government-related work is to become an executive with one of those not-exactly-public-not-exactly-private institutions like Freddie Mac or Fannie Mae–whose headquarters is, conveniently, just a few miles south from Chevy Chase. (I am picking on Chevy Chase, of course, only for exemplary purposes: the phenomenon I’m discussing is a national one, although it is most obviously visible in the DC area.)

    There are other groups of people who may not be quite as affluent as some of those mentioned above, but who also stand to benefit directly from Obamaism. K-12 school administrators, for example, can look forward to increased funding flowing to their schools–always the key element of the “progressive” solution to educational problems–and, surely, some of it will stick to them. At the same time, the Democratic worldview makes it unlikely that any serious performance standards will be put in place, thereby helping to ensure their employment security.

    Now, I have no problem at all with people making large amounts of money…in fact, I’m all for it…as long as they are making money based on voluntary exchange and they are actually helping to produce the wealth from which they are being paid.

    There are certainly some government employees, and employees of the “extended government,” who are in fact wealth-producers. An air traffic controller is as much a productive part of the air transportation system as is a private-sector airline pilot. A real research scientist at NIH or CDC is as much a part of the productive healthcare research system as is a researcher at Pfizer or Medtronic. (I use the “real research scientist” qualifier because these agencies seem to be devoting an increasing portion of their resources to nanny-state scolding.)

    But the productive elements of government surely represent a declining percentage of the total government and extended-government employment. Many of the individuals making $100-$170K in government probably couldn’t learn to control air traffic or develop new drugs if their lives depended on it…rather, their skill is in manipulating language, in constructing verbal formulations along the approved patterns, and their activity is primarily about the transferring and absorption of wealth. Lawyers, lobbyists, and trade associations that exist to protect companies and industries from government overreach may sometimes be beneficial in that they keep economically-disastrous things from happening; OTOH, their activities also often distort economic activities in favor of the entities that are paying them, in ways that reduce the efficiency of the overall system.

    The danger is that we are entering an era in which the best way to gain wealth–indeed, the only reliable way to gain wealth–is to use the power of government to take it from others and redistribute it in your direction. The belief that Obama/Pelosi/Reid redistributionism is exclusively or even primarily about helping those with low incomes is incorrect. It is indeed class warfare, but of a horizontal rather than a vertical nature.

    Once again I quote Benjamin Franklin:

    There are two passions which have a powerful influence in the affairs of men. These are ambition and avarice—the love of power and the love of money. Separately, each of these has great force in prompting men to action; but, when united in view of the same object, they have, in many minds, the most violent effects.

    …and Irving Kristol:

    Now, the pursuit of power is a zerosum game: you acquire power only by taking it away from someone else. The pursuit of money, however, is not a zero-sum game, which is why it is a much more innocent human activity. It is possible to make a lot of money without inflicting economic injury on anyone. Making money may be more sordid than appropriating power—at least it has traditionally been thought to be so—but, as Adam Smith and others pointed out, it is also a far more civil activity.

    By tightly coupling the pursuit of money to the pursuit of political influence and power, Obama/Pelosi/Reid are doing great harm to the spirit of America as well as to its economy.

     

    7 Responses to “Paying Higher Taxes Can Be Very Profitable (rerun)”

    1. Glenn_Beck_is_funny Says:

      “their skill is in manipulating language, in constructing verbal formulations along the approved patterns, and their activity is primarily about the transferring and absorption of wealth” ………
      like an econ blogger?

    2. Michael Kennedy Says:

      I have friends, both physicians, who have lived in Chevy Chase for many years. I visit from time to time and hear the stories. It really is a company town. They go to cocktail parties and meet all those people on Sunday shows plus many anonymous (to them) people who are more influential in a quiet way. His entrée to this society seems to be the fact that, if any of them have had total hip replacements, or ankles or shoulders, he did them. Otherwise, they have little in common with those people and, as they have gotten older, they spend less time at such events.

    3. Doug Says:

      Sounds an awful like the Mandarins of the courts of the various Chinese dynasties. Well paid, very influential, powerful, and parasites on the body politic.

    4. Jimmy J. Says:

      The government needs money to operate. Taxes are that money. However, as you point out, more and more of the money is being spent to micro manage our affairs, which is not necessarily furthering the productivity of the country. Now that much of the cost of government goes to efforts to keep the sheeple in line, I resent the cost. Especially when it pays the bureaucrats so well and produces so little benefit.

      I like your quote from Kristol, especially this, “The pursuit of money, however, is not a zero-sum game, which is why it is a much more innocent human activity.” Bill Gates, Warren Buffett, Steve Jobs, Paul Allen, and others who have gotten filthy rich have created more jobs, created more tax income for government, raised more people’s standards of living, and made the world a better place than any potentates or politicians I can think of. What we need are more of them and fewer of the politicians and bureaucrats.

    5. david foster Says:

      Forthcoming film: An Inconvenient Tax, from the Moving Picture Institute.

    6. methinks Says:

      Nice post, David.

      Let’s not forget that those people who are politically connected can also obtain things they would otherwise have to pay for through favours from their politician friends. The additional taxes are a small price to pay for that kind of power – which obviously increases as the government gets stronger and we have less disposable income because taxes are higher.

    7. DrTorch Says:

      All very true.

      I live and work in the DC area for 14 years now. (Although never Chevy Chase) I’ve tried to point this out to people in other parts of the country. They don’t seem to think it matters much.

      Thanks for a cogent summary of the activity.