These days there is a lot of talk about taxing the rich. While there are various reasons for taxing rich more than the poor, recently at a McCain rally a self proclaimed rich person stood up and said the following:

“I’d rather pay higher taxes so that man can live, rather than take another trip to Italy.”

I would like to point out two glaring issues with this statement.

1. There are many, many ways for this rich man to help those less fortunate than himself. He does not need higher taxes to do so. The easiest way is just giving money to one of any large number of charities. Other more time intensive ways include hiring people with the extra money to do things or finding poor folk and helping them directly. Many charities have a lower administration cost than the Federal Government. Using one of those to help his fellow man would actually help more of them.

2. Envision for a minute a restaurant that is not doing very well due to the recession. A waitress at envisioned restaurant who is struggling to make ends meet. Then a rich American enters the restaurant and orders a large meal for himself and his family. He is in a good mood and leaves a large tip. This man is on a vacation in Italy (or in the US), and he unknowingly just purchased food for the family of the waitress, the busboy, and the owner of the restaurant. Now imagine that the man did not go on vacation. He did not eat out at the restaurant and not only did those families have less to eat, the restaurant perhaps had to shut down and the cook, waiters and, bussers were all put out of work.

I know that the second situation is a hypothetical one, but the point is that we do not know what will happen to that money if it is not taken by the government. Perhaps in today’s volatile world the money would just be put into a bank. What good could the money do there you ask? Perhaps that would give the bank enough capital to make a business loan to new restaurant.

Another day I will write on why some level of progressive taxation is fair in my opinion, however these statements by the rich are not logical. Perhaps they do not think about what happens to their money, or what choices they can make? Are we as humans to the point where the government must tax us in order to help our fellow man? I certainly hope not.

Note: Point number 2 is not a new one in economics. Frederic Bastiat (1801-1850) makes similar arguments his book Essays on Political Economy, specifically in the chapter, “That Which Is Seen, and That Which Is Not Seen” and although he is old, French, and often incorrect, that chapter was influential in the writing of this post.