Suppose a politician suggests that increasing the sales tax on yachts and private jets from 8 percent to 25 percent will increase government revenues that will only affect the wealthy (who can afford it). So with this increased revenue the government may provide financial assistance to other citizens, including college students, the poor, and public employees. Imagine that this policy is implemented but the politican’s prediction does not come to pass.
What happens is that the demand for luxury items decreases (since some of the “rich” are not “filthy rich”), the prices for these items are lowered in order to increase the demand, and the luxury item manufacturers, distributors and retailers fire a large number of their workers since their employers can no longer afford their salaries. Moreover, those that benefited directly and indirectly from the sale and use of luxury items were harmed as well.
For the tax increase resulted in decreasing sales of fuel, life vests, parachutes, cleaning articles, alcohol, first aid kits, bait and tackle, and all sorts of other items. Yacht and private jet mechanics had less work, and thus less business and thus less income. So, what the tax increase did was not “soak the rich,” but, paradoxically, it resulted in less tax revenue for the government, since it helped facilitate a decline in sales by artificially increasing the cost of the items, and because it created unemployed workers who no longer paid taxes and less prosperous businesses that paid fewer taxes.
I bring this narrative to your attention because of something President Obama asserted at his June 30 conference: “If we do not have revenues, that means there are a bunch of kids out there who do not have college scholarships. . . .[It] might compromise the National Weather Services. It means we might not be funding critical medical research. It means food inspection might be compromised. I’ve said to Republican leaders, ‘You go talk to your constituents and ask them, Are you willing to compromise your kids’ safety so some corporate-jet owner can get a tax break?’”
The president implied that the elimination of a tax break for corporate jets is a zero-sum game with only an up side, and that up side helps those who are not as well-off as those who procure the services of corporate air transportation. (And he left aside the fact that all but three Republicans in Congress voted against the legislation that granted the tax break while those in his own party supported it in large numbers.)
Soak the rich? The people who make private jets aren’t wealthy.
It seems to me that any elected official who presents a contested public issue in such an unsophisticated and simplistic manner, and in the framework of class warfare, does not truly care for the people for whose good he was elected to advance. For no one, least of all a statesman, is ever justified in appealing to the lesser angels of our nature, since to do so elicits and exacerbates the sorts of vices – e.g., envy, jealousy, covetousness – that if left unchecked contribute to the diminishing of our characters. So, when the President engages in such rhetoric, he either knows that it is bad and thus shows contempt for his fellow citizens, or he thinks that it is good and thus reveals that he is ignorant of the requirements of statecraft.
What’s more, the president does not seem to understand, among other things, how wealth is created, how markets work, what sorts of government policies increase jobs, and what type of monetary policy produces inflation (which hurts the poor since it increases the money supply while decreasing the value of that money, just as counterfeiting does when practiced by private individuals).
And even if one were to master these aspects of political economy, it does not mean that one will know precisely what government policy is best. One also needs to have an understanding of human nature and what sorts of social institutions and practices make poverty less likely. For this reason, some political economists argue that the government should also be making sure that its policies do not undermine or interfere with certain institutions, practices, and beliefs that flourish in economically prosperous communities, for example, intact families, an educated public, a commitment to the common good, and a strong belief in the moral law.
It has been well documented, for example, that the U.S. government’s now defunct (1935-1997) Aid to Families with Dependent Children (AFDC), though intended to provide financial help to single mothers below the poverty line, actually resulted in a dramatic increase in out-of-wedlock births and fatherless homes. Because the government, according to AFDC critics, was literally paying women for having children out of wedlock, it got what it paid for. But it got more social pathologies and thus more poverty as well.
In 1996, President Bill Clinton, a Democrat, in cooperation with a Republican Congress, signed legislation that ended AFDC and replaced it with a program called Temporary Assistance for Needy Families (TANF). Although many critics of President Clinton’s welfare reform in 1996 predicted dire consequences for the poor, in 2006 the liberal magazine The New Republic pointed out, “A broad consensus now holds that welfare reform was certainly not a disaster – and that it may, in fact, have worked much as its designers had hoped.”
It turns that Aristotle was right: statecraft is soulcraft. And demagoguery remains the same in whatever century it is used.