There is a new study out, written by economist Thomas Piketty, which has captivated the American left. Titled “Capital in the Twenty-First Century,” it is filled with statistics that appear to make a powerful case for wealth re-distribution in the name of fairness. It is being used to provide academic support for the call for hefty increases in the minimum wage and taxes on the rich.
Supporters of these proposals insist “they are only fair.” Fairness is indeed a legitimate virtue. However, such a strategy has been tried before, which raises another issue that is equally legitimate: “Does it work?”
I don’t argue with the concept of a minimum wage. However, if it is set too high it can re-distribute poverty instead of wealth. Whenever something is priced higher than its value, demand for it disappears, an economic truth that applies to jobs as well as goods.
I’m old enough to remember gas station attendants. When you drove in, they would greet you, fill your tank, wash your windshield and check your oil. They didn’t earn much, but it was a welcome job for people who couldn’t find other work, who wanted to supplement their regular incomes or who were teenagers getting their first job experience.
I know about that because I went to work, part time, at age 14. Neither I nor my family needed the money, but the lessons I learned – how to show up on time, follow instructions, be accountable, do a full day’s work – were invaluable to me. Raising the minimum wage to unrealistic levels in the name of “fairness” would particularly hurt minority youth in the inner city, among whom unemployment levels are the highest in the nation. Trying to close the wealth gap by pricing low-skilled jobs out of existence doesn’t work.
Now, on the issue of taxes, I accept the obvious truth that they need to be set at adequate levels to fund appropriate government actions. I also accept the idea that assistance for the poor is such an action. What I do not accept is the idea that high taxes will automatically close the wealth gap.
Let’s look at California, where incomes above $48,000 are taxed at 9.3 percent. That’s higher than the rate millionaires pay in 47 other states. The following information about the consequences comes from Professor Joel Kotkin of Chapman University, a self-described "Truman Democrat.”
“Hollywood” is now filming in Louisiana, Canada and elsewhere to avoid California taxes. Toyota is moving its U.S. headquarters from Los Angeles to Dallas, taking 3,000 jobs with it. Occidental Petroleum is moving from Los Angeles to Houston. Twitter, Adobe, eBay and Oracle have all moved many California operations to Salt Lake City.
In the last 15 years, California's industrial employment base shrank by 600,000 jobs. In the last 20 years, roughly 4 million more people moved out than moved in, most of them young families. California’s unemployment rate is fourth highest in the nation. Yet California’s wealth gap, which high taxes are supposed to fix, is both wide and widening. Among the 50 states, it ranks in the top 10 in terms of size and the top three in terms of growth rate.
There have been plenty of other factors involved in turning California’s business climate into the worst in the Union; taxes alone didn’t do it. However, the fundamental truth remains -wealth must be created before it can be redistributed. When that process is unduly hindered, the poor get hit the hardest, and that doesn’t work to close the wealth gap, even when done in the name of “fairness.”
Robert Bennett, former U.S. senator from Utah, is a part-time teacher, researcher and lecturer at the University of Utah’s Hinckley Institute of Politics.