<< Back to Blog

Do Rich/Wealthy People Deserve Tax Breaks? - 04/25/2009

I was in a discussion with someone recently who argued that we should increase taxes on the rich because they don't deserve that much money. I followed up by asking why they don't deserve it. The answer I received was because they have so much money and they don't need it all. So the discussion instantly changed from one of "deserve" to one of "need", probably without the person who made the comments even realizing it.

This person was one of many who equates "deserve" with "need", as if they were synonymous. It's probably true that someone who makes $100 million per year doesn't need an extra few hundred thousand in tax breaks. But of course, we're talking about whether or not they deserve it, not whether or not they need it.

To become rich someone needs to work hard, work long hours, and do something so extremely valuable that people are willing to purchase their products and services in such large quantity that they become rich. So in the process of becoming rich, one must provide some huge benefit to many others. And in the process, they have earned their money, and therefore they deserve it. For their hard work, they are rewarded with the ability to spend their money in any way they'd like. This may mean investing it, buying fancy yachts, or simply passing it on to their children. As those that did the work to earn gobs of money, they deserve to dispose of it by any method of their choosing (so long as they are not in violation of someone else's rights when doing so).

But what if we tax rich people more, not because we think they don't deserve the money, but because they don't need it? A good example of the consequences is the 1990 tax on luxury yachts over $100,000 instituted by the U.S. Government. This was clearly a tax on the rich, as anyone else wouldn't be buying these boats. But this did little to rich people, who simply shrugged off the idea of purchasing a yacht of that price, or perhaps bought it elsewhere that did not impose such a tax. The result was that yachts in this price range dropped 71%, a job loss of 25% in the yacht manufacturing and sales industry, and rich people still had their money.

In an attempt to "spread the wealth" by force by taking money from people that have earned it, the ones hit hardest were actually the average working person who fed his family by means of constructing and selling boats. The tax increase generated only a small portion of what was originally thought by those that introduced it. In 1993, the tax was removed.

(It should be noted that not all rich people are beneficiaries of their hard work or the voluntary transfer of work of others. Many have received favors from government in order to acquire what they have. Whereas some people will suggest that we should tax these people, libertarians believe we should strip government of the power to favor anyone, thereby leveling the playing field).