Why low taxes “benefit” the rich

Living in the US I hear a lot of heated rhetoric about taxes. While I’m not an economist, I do want to weigh in on what I see as a glaring logical flaw in how low taxes are supposed to benefit the little guy.

Taxes paid to the government largely go to “safety net” services like pensions, unemployment benefits, basic health care, food stamps and so on. Such services, in sufficient quantity and quality, enable unemployed or disabled people to retain their dignity and health while they get back on their feet and back to work. (source: See pie chart here).

Very rich people are much less likely to need such services, and so for them paying taxes goes straight to something they don’t use and therefore don’t benefit from.

Do tax cuts really benefit the rich?

But the rich in America, and in particular the super-rich, are a dwindling minority (while their total wealth balloons) (source: 15 charts about wealth and poverty at Business Insider). Therefore in order to keep the system tilted in their favour they must convince a majority of voters to act in the interest of the wealthy elite, often against the poor’s own self-interest. They enact such influence on both Democrats and Republicans, but I can definitely detect a preference for Republicans, for whatever reason.

This is why we are seeing this daft resurgence of “small government” and “Reaganomics” mantras from the Tea Party, when a more relevant question would be “what is the right size for the government to meet our needs, and what mix of services would it provide?”.

This would be completely comprehensible (yet still not excusable), except that there’s a flaw the internal logic of these massive vested interests. As this siphoning of money and consolidation of power continues, the number of people who can afford to be at the top goes down. The social services that make life so easy for the rich crumble. You end up, in extreme cases, with scenes such as those scene across Africa and the Middle East this week (not that I’m suggesting the US is even close to that, but it’s an educational example nonetheless).

So how can the US-based super-rich act in their own self-interest without screwing over everyone else and, eventually, even themselves?

This brings me to a phenomenon I am going to call the “plumbing principle” (after actual plumbing, not Joe the Plumber). Basically the story goes like this: a version of the modern toilet was invented in England in the early 19th century because the aristocracy were so convinced that they were a fundamentally different breed of person from the lower classes that they started to pretend they didn’t even shit. In order to maintain this facade it was vitally important never to leave a room with a visible turd in it, be it in a pan, on the floor, on the nightstand or in the pocket of a silk smoking jacket.

This led to the popularisation of the ceramic flush toilet amongst the very rich. Hallelujah! A room and device that made your lordship’s turd disappear faster than a donut at a me-right-now convention.

But then something amazing happened. Doctors noticed a decrease in all sorts of diseases – naturally, as these people were exposed to far fewer microbes over a much shorter span of time.

In 1848, with the Thames boiling with effluent and full chamber pots causing as many head injuries as cases of Cholera, the British Parliament passed the Public Health Act, mandating a toilet in every home and allocating 5 million pounds (a huge sum at the time) for the construction of underground sewers and treatment plants.

In doing so, typhoid was practically eliminated overnight, and economic growth skyrocketed. The UK had achieved what so many civilisations had not – a functioning, multi-million person metropolis, with all the economic advantages and opportunities that created for both the nation and individuals.

Obama talks about the “Sputnik Moment” as the driver of innovation and passion for the current century, but this implies a winner and loser – at least internationally. With the US economy creaking at the seams and the rhetoric from vested interests getting ever more divisive, perhaps it’s actually time for a “plumbing moment” – for the super-rich, the government, and concerned citizens to take a step back and think very seriously about how we can reap the rewards of mutual success rather than the winner-takes-all situation we find ourselves in today.

3 Replies to “Why low taxes “benefit” the rich”

  1. Will read more later.

    Can,t you make case fpr large tax benefiting little guy saying, sweden.