Everyday Economics

Tax the Knickers Off Your Grandchildren

If income redistribution is such a good idea, let’s make those rich future generations pay.

As of this writing, Bill Gates’ estimated net worth is $24 billion. On the conservative assumption that he’s earning 3 percent after taxes and inflation, his investment income is about $2 million a day.

It’s difficult for one to even imagine what it would be like to have that kind of pure income. But it won’t be as difficult for your grandchildren. If U.S. per capita income manages to grow in real terms at a plausible 2 percent per year, then in just 400 years, the average American family of four will enjoy a daily income of $2 million. And those are not some future, ravaged-by-inflation dollars–I’m measuring everything in the dollars of 1997.

More remarkably, if the United States could achieve the growth rates that have been reported by South Korea in the past couple of decades, it would take only about 100 years until the average family’s income approaches $2 million per day. If the United States grows like South Korea, your children’s grandchildren can live like Bill Gates–unless they rise above mediocrity and live even better.

So each time the Sierra Club impedes economic development to preserve some specimen of natural beauty, it is asking people who live like you and me (the relatively poor) to sacrifice for the enjoyment of future generations that will live like Bill Gates.

Taking from the poor and giving to the rich is the opposite of income redistribution as it is usually practiced. If we were consistent, we’d insist that those wealthy future generations owed us something, not the other way around. If some moral principle allows the tax collector to confiscate 40 percent of Gates’ income, that same moral principle should allow the unemployed lumberjacks of Oregon to confiscate your rich grandchildren’s view of the giant redwoods.

(I am accepting, for the sake of argument, the Sierra Club’s presumption that it can accurately foresee what our descendants will value. But it’s worth mentioning a separate reason to be skeptical of the conservationist agenda: For all we know, those descendants might prefer inheriting the proceeds of economic development to inheriting the redwoods.)

The conservationists are not alone in their pathological concern for future generations. The same impulse has launched an epidemic of hysteria over federal deficits. The national debt is to the ‘90s what the nuclear freeze was to the ‘80s: It’s the one issue you don’t really have to understand before you can start feeling morally superior to your neighbors. From that point of view, it’s even better than the nuclear freeze–not only does your expression of deep concern put you on the moral high ground, but you actually get to stand on that ground and prescribe suffering for everybody else.

Thus we have the Concord Coalition types, who are always whining that the national debt forces them to live well at their grandchildren’s expense. I have news for them: Nobody can force you to live well at your grandchildren’s expense. If you think your lifestyle is too extravagant, spend less and bequeath the savings to your grandchildren.

The arithmetic works. If the government cuts your taxes by $1,000 and sticks your grandchildren with the bill–say $2,000 with accumulated interest–you don’t have to spend the $1,000. You can put it in the bank, where it will grow to $2,000 by the time your grandchildren withdraw it to pay their taxes.

While it makes no sense to worry that you are living well at your grandchildren’s expense, you might legitimately worry that someone else is living well at your grandchildren’s expense. Maybe your neighbor applies his $1,000 tax cut to buy a car made of steel that could otherwise have been a girder in a factory that might have employed your grandchildren. Economists disagree about how plausible that story is, but we all agree that if you’re out to protect your grandchildren from the national debt, it’s basically the only story you have to worry about.

If you are worried about that story, it means one of two things. Either 1) you believe that your neighbor has no right to live well at your grandchildren’s expense or 2) you believe that your neighbor has that right, but you’d prefer to prevent him from exercising it. In Case 2, I assume you have sufficiently little interest in moral niceties that you wouldn’t be reading a column like this one in the first place. That leaves Case 1. But if you believe that your neighbor has no right to live well at the expense of your fabulously wealthy grandchildren, you must also believe that your neighbor has no right to live well at the expense of Bill Gates. In other words, if you’re unhappy about the national debt, you should be doubly unhappy about the progressive income tax.

The popular philosophy of income redistribution requires us to transfer income from the few high earners of today, while the popular philosophies of conservation and “fiscal responsibility” require us to transfer income to the many high earners of tomorrow. Those who embrace all these philosophies at once–Bill Clinton comes to mind–have about them at least a mild air of intellectual schizophrenia.

(For a more technical analysis of what we owe to future generations, click.)