Joe the Plumber

“Joe the Plumber” featured a good bit in the last Presidential debate. And he was interviewed afterward. For those of you who haven’t been following this item, Joe was captured on camera at an Obama rally ( a few days before the debate) asking Barak Obama why he should be taxed at a higher rate just because he worked hard and became successful. Joe feels that if he managed to make $250,000 a year (which he doesn’t), he ought not to be taxed “extra” just because he has been successful.

I have to say that I think Joe has a good point. The general principle of “income redistribution” (called “progressive taxation” among economists) is to make those who have more pay a higher tax rate than those who have less. This is essentially the Robin Hood principle of taking from the rich to give to the poor, and of course it is naturally highly popular with the poor, and apparently with liberals.

But is it really fair? If Joe works hard and buys a plumbing business (which is what he was thinking of doing) and makes a success of it and manages to bring in $250,000 a year, should he be taxed at a higher rate than someone who doesn’t work as hard and doesn’t take the entrepreneur risks of a small business owner? If someone is willing to work his/her way through medical school and years of internships and become a highly-paid surgeon, should they be taxed at a higher rate than someone who chose not to work so hard?

Proponents of progressive taxation like to point to rich heiresses or CEOs making millions and ask why they shouldn’t be asked to share more of their wealth, but of course that is a red herring. Most of the truly rich (people and corporations) actually pay very low taxes – they can afford the expensive legal help to find ways of avoiding taxes. (for example, if your company provides you with a penthouse and a private plane and a private chef you don’t get taxed for their cost and your company can even write the cost off as expenses). These higher rates really fall mostly on successful professionals and small business owners who happen to be doing well.

I never have been philosophically happy with this liberal approach. Certainly everyone (including the very rich, who now largely escape taxes) ought to pay taxes, and perhaps the tax rate or amount ought somehow to be proportional to the services consumed (ie – if you drive more, you ought to have to pay more of the highway tax). And I can see an argument for making everyone pay the same proportional (“flat”) tax -- say 15% of your income, whether you make $10 or $10 million, but I have always been uncomfortable with the idea that you ought to have to pay a higher proportion than other people just because you worked harder, were willing to get more education, were willing to take on the substantial risks and problems of a small business owner, and were more successful.

Of course promising to tax the rich more always plays well with much of the liberal base, but it seems to me this gets the incentives wrong. We would like to encourage people to get more education, to develop skills more valuable to the society, to work harder, to innovate, to be entrepreneurs and create more jobs and produce more products and services. Why then should we penalize those who do with a higher tax rate? If anything, perhaps we ought to penalize the couch potatoes with a higher tax rate, since they contribute less to the society.