TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, December 20, 2012

The Moral Solution to the Fiscal Cliff: Earned Income Brings Happiness, Unearned Income Breeds Despair

Wall Street Journal op-ed:  America's Dangerous Powerball Economy: Unearned Income—as from the Lottery or Entitlements—Doesn't Buy Happiness, by Arthur Brooks:

What can the state lottery teach us about how to deal with the fiscal cliff? Quite a bit, actually. ...

[H]itting the jackpot generally leads to unhappiness. ... There is a huge amount of research showing that money, when earned, has a generally positive association with happiness. The problem is when it is unearned, when raw purchasing power is untethered from hard work and merit. Above basic subsistence, happiness comes not from money per se, but from the value creation it is rewarding. ... While earned success facilitates the pursuit of happiness, unearned transfers generally impede it. ...

All this data relates to our policy debates because every year, fewer and fewer people earn their way in America without a government subsidy. As my colleague Nicholas Eberstadt has written, entitlements have doubled as a percentage of the ballooning federal budget since 1960. Today, more than half of American households receive government transfer benefits. ... The Tax Foundation notes that nearly 70% of Americans now take more out of the tax system than they pay into it.

It is a simple fact that the United States is becoming an entitlement state. The problem with this is not just that it is bankrupting the country. It is that the entitlement state is impoverishing the lives of the growing millions dependent on unearned resources.

The good news is that we have a golden opportunity to rein in entitlements, for the first time in many years. But there is bad news, too. President Obama argues that the real problem is undertaxing the public, not overspending on entitlements. ...

Mr. Obama's proposal suggests he is entirely comfortable with an entitlement state. His telling entrepreneurs that they weren't responsible for their success on the specious grounds that government was responsible for the country's infrastructure—"You didn't build that"—wasn't just an inartful turn of phrase. It implied he is blind to the moral difference between what is earned and what is unearned.

Before us today is a chance to improve the true welfare of our nation while changing our overspending ways. By reforming entitlements and the tax system instead of extracting more money with higher tax rates, the economy could be reoriented away from unearned transfers to earned wages. This would make the economy fairer and sounder. And in the process it could build a happier country for ourselves and our children.

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Mr. Brooks seems to have forgotten Wall Street and the big banks brought the economy to the brink of a depression and destroyed millions of jobs.

Maybe if we cut benefits to disabled veterans and sick old ladies then Lloyd Blankfein can get a bigger bonus?

Posted by: save_the_rustbelt | Dec 21, 2012 7:28:33 AM