Special Report

No, YOU Didn’t Build That!

The truth is the opposite of what our campaigner-in chief claims.

By 8.3.12

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Speaking in Roanoke, Virginia, on July 13, President Barack Obama famously uttered the words that may come to define him and the 2012 presidential campaign: "If you've got a business, you didn't build that. Somebody else made that happen."

The truth is the opposite: It is government that is utterly dependent on the private sector, in fact on a small highly-productive subset of the private sector, for its ability to do anything.

Obama says entrepreneurs should be fawningly grateful to government (and implicitly to him) for teachers, roads, bridges, and the Internet. But who paid for that teacher, that infrastructure, and that scientific research?

The answer is not "taxpayers" and certainly not "all of us" but rather "a very small percentage of Americans."

The Congressional Budget Office (CBO) recently released a study on income and tax distribution for the years 2008 and 2009. The imbalance between incomes earned and taxes paid is dramatic -- in exactly the opposite way from the claims of President Obama and his supporters. The funding of our government embodies, as Mart Laar so eloquently put it (in remarks I highly recommend you watch), the "grand idea of Karl Marx."

("Income distribution" is itself a misleading term, implying that the economy "distributes" a fixed amount of income, like your mother deciding who at the table gets how big a slice of the cherry pie. But wealth is created, not distributed, when people provide goods or services that the purchasers value more than the money they part with to receive them. Outside of monopoly or near-monopoly situations, both parties to a transaction believe themselves better off, which is why we do not get richer by making other people poorer, but rather by making other people richer, happier, healthier, and more productive.)

In 2009, the highest quintile (top 20 percent) of earners, with household incomes over $223,500 before taxes, took in 51 percent of the nation's income but paid 68 percent of all individual federal taxes. The middle quintile -- the oppressed middle class, earning between $64,300 and $93,800 -- took in 14.7 percent of America's income but paid only 9.4 percent of federal taxes. And the lowest 20 percent of earners, making less than $23,500, brought home 5 percent of the nation's income (much of which was transfer payments from the rest of America) but paid only 0.3 percent of federal taxes.

The effective federal tax rates for these groups were: 1 percent for the lowest quintile, 11.1 percent for the middle quintile, and 23.2 percent for the highest quintile. Keep this in mind when liberals tell you that data showing the rich pay a disproportionate share of all taxes are skewed because they don't include the fact that lower income Americans pay Social Security and Medicare (payroll) taxes; the CBO data do include those taxes, as well as certain federal excise taxes such as on alcohol and tobacco. (Excise taxes are the only category in which lower earners pay more tax as a share of their income than higher earners because they spend disproportionally more on beer and cigarettes.)

Even these numbers understate the penalty for success in America. The top 1 percent, who earned 13.4 percent of the nation's income in 2009, paid 22.3 percent of all federal taxes and their average tax rate was 28.9 percent.

By including Social Security and Medicare (payroll) taxes, which -- at least theoretically -- return to those who pay them as health benefits or cash repayments in the future, the CBO study plays down the degree to which a small section of society is paying the freight for the entire nation. For example, the top 1 percent of earners paid nearly 37 percent of all federal income taxes -- down from over 40 percent just a couple of years earlier because the recession hurt upper-earners disproportionately. The top 10 percent of earners pay an astonishing 70.5 percent of federal income taxes.

Looking only at income taxes, as this Tax Foundation report does, other relevant facts jump out:

  • While tax rates for the bottom 80 percent of taxpayers have been dropping steadily for three decades, rates for the highest quintile, and particularly the top one percent, have been little changed. The tax code is more "progressive" than any time in our nation's recent history because so many Americans now pay no income tax at all.
  • The top quintile "now pays 94% of income taxes."
  • The share of national income earned by the top 1 percent has dropped to roughly the average level found the 1990s.

Even with a CBO methodology which obscures the magnitude of the penalty for success in America, the lessons from the study go beyond debunking Obama's repeated claim that "millionaires and billionaires" don't pay their "fair share."

If all Americans benefit equally from having a strong national defense (I defy the left to argue that the life of a rich person is worth more than the life of a poor person), and with more than two-thirds of federal spending going to the combination of transfer payments (about 43 percent), defense (about 19 percent), and interest on our debt (about 6 percent), one can argue that all -- more than all -- federal discretionary spending such as on roads, education, and scientific research is funded by the small slice of American society whom Barack Obama and friends most demonize.

The tameness with which the "rich" react to the sucking of their economic blood by the sanctimonious leeches of government is a testament to the generous spirit of Americans, particular of the Americans whom the left most aggressively attacks as selfish and uncaring -- as literally pushing granny off a cliff. At least leeches have the good manners not to ask for thanks.

Rather than Barack "you didn't build that" Obama and Elizabeth "you didn't get rich on your own" Warren griping about the success of the successful and crediting themselves for the accomplishments (and, in Warren's case, the heritage) of others, they should be offering sincere and profound thanks for those Americans who do things that Obama and friends could never do, who take risks that Warren and friends would never take.

If Obama wants entrepreneurs to thank government for what it builds or creates, he should first thank successful businessmen and women for paying for all of it.

The right response by businessmen to President Obama is not simply "We built our businesses" but also "We built the bridges, too."

To put it another way: You can imagine that in the absence of government involvement, there would still be schools with good teachers (as there are in thousands of private schools today). You can even envision that in the absence of government involvement the private sector would create roads and bridges. But can you conceive of the government doing anything -- whether things it should or should not be doing -- in the absence of taxpayers? Who really needs whom here?

Sorry, Mr. Obama, but it's YOU who didn't build that.

 

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About the Author
Ross Kaminsky is a self-employed trader and investor and is a senior fellow of the Heartland Institute. He is the host of The Ross Kaminsky Show on Denver's NewsRadio 850 KOA on Saturday mornings from 6 AM to 9 AM. You can reach Ross by e-mail at rossputin(at)rossputin(dot)com.