Tuesday, September 9, 2008

360 Comment: Takes, Taxes, and Entitlements

America recently marked the third anniversary of one of the most controversial Supreme Court decisions of recent memory: Kelo v. City of New London. Kelo is the now-infamous "takings" case, in which the Supreme Court declined to rule unconstitutional a Connecticut town's decision to use the power of eminent domain to take property away from a group of working-class homeowners and give it to a private development corporation for use as part of a government-approved "economic revitalization" project.

As a result, attractive, well-maintained homes that the petitioners had lived in for decades were bulldozed to make way for upscale condominiums, a waterfront conference hotel, an office park, a renovated marina, and various other commercial and retail facilities that cater to the interests of the business, professional, and leisure classes.

The legal issue in Kelo was whether the proposed taking was for a valid "public use" within the meaning of the Takings Clause of the Fifth Amendment
, which prohibits the government from taking private property except "for public use" and upon payment of "just compensation." In its decision, the Supreme Court acknowledged that the condemned property in Kelo would not be open for use by the general public, in the manner of roads or parks or schools or public utilities. Nevertheless, the Court held that the proposed redevelopment plan served a valid "public purpose" because it would bring "new jobs and increased tax revenues" to the local community. The fact that the plan primarily would benefit private individuals and corporations, at the expense of the displaced homeowners, did not render it unconstitutional. As the Court explained, "[p]romoting economic development is a traditional and long accepted function of government."

The Kelo decision produced an avalanche of outrage from across the political spectrum, and sparked a grassroots movement to limit the eminent domain authority of state and local governments. The reaction to Kelo was driven by the simple, yet powerful, insight expressed by Justice O'Connor in her dissenting opinion (which was joined by Chief Justice Rehnquist, Justice Scalia, and Justice Thomas): "Under the banner of economic development, all private property is now vulnerable to being taken and transferred to another private owner, so long as it might be upgraded -- i.e., given to an owner who will use it in a way that the legislature deems more beneficial to the public -- in the process." While the majority opinion in Kelo faithfully, if mechanically, applied existing Supreme Court precedents (which had upheld egregious uses of eminent domain in the past), Justice O'Connor's dissent expressed a deeper concern about the abuse of governmental power.

Read Justice O'Connor's statement again. It encapsulates much more than the logic of the Kelo decision -- it describes the very essence of contemporary government. As any disinterested observer must conclude, the most important function of government today, even in the "capitalist" United States, is to use the power of the state to take the property of some persons and give it to other persons. In short, expropriation and redistribution. Only instead of using the power of eminent domain, the government mainly uses the tax-and-spend power to achieve the same ends. The purported justifications may be financial security or economic growth or cultural enrichment or, simply, "fairness." It does not matter. The result is the same: The legislature takes the private property of some persons and transfers it to other persons "who will use it in a way that the legislature deems more beneficial to the public."

This dynamic is clearly evidenced in the various congressional "earmarks" we have heard so much about lately. (See here .) It seems that most people (or at least most informed voters) recognize that, despite the high-sounding justifications offered by politicians, earmarks represent the government's illegitimate use of the tax-and-spend power to provide private benefits to favored, politically-powerful, groups.

Another example is Barack Obama’s proposal to impose a “windfall profits tax” on “Big Oil” and use the proceeds to provide “energy rebates” to individuals and families. This is a textbook case of using the power of government to take the property of some people (the owners, managers, employees, and stockholders of oil companies) and give it to others. Whether the “rich” or the “poor” or the “middle class” benefits from these tax-and-spend policies is irrelevant. All such policies are as illegitimate as the taking of the plaintiffs’ homes in Kelo.

Obama's Windfall Profits Tax scheme will not only confiscate money from the oil companies, it will also confiscate money from the hundreds of thousands of Americans who own land that is producing oil and receive royalties from that production.

Additionally, the Oil Producing States collect oil production taxes and those receipts will be substantially reduced under an Obama Oil Confiscation Tax.

Furthermore, the Oil Producing States own lands within their state that produce oil and the state receives royalty on that production.

An Obama Oil Confiscation Tax impacts far more than the oil companies.

What most people do not seem to recognize, however, is that the most important examples of expropriation and redistribution by government today are so-called "entitlement" programs.

Consider Social Security. By design, the Social Security program taxes current employers and workers to provide income benefits to current retirees. Leaving aside arguments about the financial viability of the program (which is in serious doubt, and has been for decades), it is a system of naked redistribution. There is no "trust fund" or "retirement account" that workers contribute to for their golden years. Social security taxes go straight into the general treasury.

Hence, when workers pay social security taxes, they are not saving and investing for their own retirements, as free and responsible citizens should. Rather, they are being forced -- on pain of prosecution and jail if they refuse -- to pay for the retirements of others. The plain truth is that under the Social Security program, the private property of workers -- the fruits of their labor -- is being expropriated and redistributed by the federal government, ultimately at gunpoint. This may not be "slavery" in the traditional sense; but as Walter Williams has argued, "one person is being forcibly used to serve the purposes of another person."

Moreover, there is no way to "opt out" of the Social Security system. No way for an honest, self-reliant individual to accept responsibility solely for his or her own retirement. With few exceptions, every worker in the country must pay 12.4% of his or her income in social security taxes, which is assessed on incomes up to $102,000 (approximately three times the median personal income). (Barack Obama proposes to “uncap” the social security tax by further imposing it on incomes above $250,000.) For employed individuals, the tax is divided evenly between the worker and employer (who simply reduces the worker's wages by its share of the tax); self-employed individuals must pay the full amount.

The social security tax thus represents hundreds and thousands of dollars taken from each worker by the government, and given to someone else for that other person's benefit. Hundreds and thousands of dollars that cannot be spent by the workers who earned the money on their own present and future needs. (This is in addition to the myriad other taxes we are required to pay, of course, most of which Obama also proposes to raise.) The only quid pro quo for this blatantly socialistic and unjust state of affairs is the selfish and unprincipled expectation of current employees that future generations of workers will be forced, in turn, to contribute to their retirements.

So how much money are we talking about? For fiscal year 2008, the budget for the Social Security program was $660 billion. This was nearly 5% of the nation's $14 trillion gross domestic product -- and more than the budget for the Department of Defense, which was $647 billion. (In comparison, the amount spent on all earmarks in 2008 was $17 billion.)

But that's not all. The federal government's Medicare and Medicaid programs take another $600 billion from hard-working employees to provide health care benefits to the poor and elderly. Rationally and morally, this should be the responsibility of the poor and elderly themselves, their families, and private charities -- not strangers with jobs. Just because someone is poor or elderly does not give them a right to use the organs of government to tax another person's income for their own benefit, any more than it gives them a right to steal another person's bank account.

In a free society, one person's "need" does not, and cannot, create an "entitlement" to another person's labor, wealth, or liberty. This is one of the fundamental axioms of the American political tradition. Rejection of this axiom is tantamount to rejection of constitutional government itself. While my poorer neighbors may ask me for help, of course; it should be my decision whether, to whom, and in what amount, I provide assistance to them. Surely, all of us would recognize the tyranny and injustice if the government physically forced me to cook my neighbor’s meals or clean his house or drive him to work or take him to the doctor, etc. Yet too many Americans blithely accept the government’s “right” to tax their incomes, at any level a majority of politicians decides, for the exact same purposes.

Properly understood, therefore, "entitlement" programs -- however politically sacrosanct they have become -- are little more than government-sanctioned theft. Plainly, no meaningful reform of these programs will occur until more Americans recognize the fundamental illegitimacy of the programs themselves. Only then will we move, as we must, towards a system of privately-financed retirement savings and medical insurance.

Certainly, every citizen has a duty to support the constitutional functions of government, which famously include "establish[ing] Justice, insur[ing] domestic Tranquility, provid[ing] for the common defence, promot[ing] the general Welfare, and secur[ing] the Blessings of Liberty to ourselves and our Posterity." To avoid our nation's impending economic, and political, bankruptcy, we must return to this simple, but profound vision of the proper scope of consensual, limited government.

There is cause for hope. The Kelo case opened many Americans' eyes to the government's abuse of its eminent domain power, and led to a nationwide effort, which is ongoing, to rein in that power. Importantly, what upset most people about Kelo was not the Supreme Court's narrow interpretation of the Takings Clause, but the brazen and unjust expropriation of the petitioners' property by the City of New London for the private benefit of others. From Kelo, it is only a small step to recognizing that, if it is unjust for the government to seize one person's land and give it to another person, it is equally unjust for the government to seize one person's income and give it to another person.

A taking, by any other name, is still wrong.

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