Monday, November 2, 2009

WSJ Article - Americans Feel Increasingly Disheartened

In an absolutely excellent article in today's Wall Street Journal, Peggy Noonan nails a trend that I have felt growing for some time now, but have not previously been able to but words to.  It's an important trend that impacts lawyers and will impact the amount of legal work available (and thus employment opportunities) in the future.  More after the jump.

More specifically, Noonan notes that an increasing percentage of today's top business people are feeling increasingly disheartened about the state of the country and the country's economic future.  She contrasts the current attitude with the attitude that persisted in previous economic downturns, where people had the belief that we could come up with a plan and see our way through.  This is absolutely NOT a partisan issue - this attitude seems to have been increasing since at least 2002 - and it is not just a result of the current economic downturn.

Noonan points to the following:
  • Government has demonstrated that it can not make things better, and just taxes and spends more
  • According to the NY Post,  1.5 million people had left high-tax New York state between 2000 and 2008 taking $4billion/year in tax revenues with them.  However, NY is raising taxes to compensate for this shortfall. (Which just illustrates how little they understand the problem).
  • Executives (and lawyers) are saying that the Government does not "understand that people can just stop, get out. I have friends and colleagues who've said to me 'I'm done.'" He spoke of his own increasing tax burden and said, "They don't understand that if they start to tax me so that I'm paying 60%, 55%, I'll stop." 
  •  When those in government, both locally and in Washington, spend and tax and come up each day with new ways to spend and tax—health care, cap and trade, etc.—Noonan thinks: Why aren't they worried about the impact of what they're doing? Why do they think America is so strong it can take endless abuse?  I think I know part of the answer. It is that they've never seen things go dark."
Noonan's article is pretty much right on the money.  I personally know several people that have curtailed their activities in light of tax and/or regulatory disincentives - and the number seems to be growing slowly but surely.  These are people that could be adding to the economy and creating a lot of jobs and businesses, but they are discouraged from doing so by the situation.  Several others have voiced to me the sentiment that if their combined tax load - federal, state, city (if any), social security, and medicare rises to 50% of their salary, then why work those hours?  They would be working more for the government than for themselves and they are certainly not motivated to do so.  Why work when it benefits the government more than it does you?  (Some people may not be aware that for most hardworking, high-earning people, the percentage typically already exceeds 40% -  say 35% for fed, 5% for state and 3-5% for SS and Medicare = 43-35%% - and that federal taxes are going up about 5% in 2011.) 

Noonan describes this phenomena as people feeling "disheartened" - and I think that there is an element of truth there.  However, I would look to the source a little more.  These are people that recognize that the deal that is being offered to them is changing.  That the social compact that is America is changing from what it previously had been.  I think that there certainly is an element of disappointment and worry about the future.  They also seem like they are just no longer interested in the deal offered by the new social compact.  Unfortunately, that's very dangerous for the long-term viability of the country.

What is going on here?


It seems like people have forgotten that the most powerful engine of economic progress is self-interest.  It should be easy to see this because we have many powerful examples that socialistic economies are stagnant.  It's also clear that in economic structures where working hard does not get you ahead, people typically cease to work hard and the economy declines.  Conversely, in well-regulated capitalistic economies where the value proposition of working hard to get ahead is clear and obtainable, people willing to work hard advance themselves and advance the economy with them.  Further, in order for that value proposition to be successful, people that are going to work hard and make the economy grow must have confidence that what they work hard to earn will remain theirs - that the government will not tax it away.  The American dream previously has been about opportunity, not guaranteed entitlements.  It has been about self-reliance, not turning to the government's coffers to pay for your needs - about "paying your own way" rather than taxing the "rich" and paying nothing.

The American government needs to re-learn some restraint - and that only through restraint can the country be preserved for the long term.  We need to develop the character to make hard decisions today, not promise everything to everyone and try to pass the cost off to our children and the Chinese.  We need to place responsibility back on the individual - and on all individuals, not just the hardworking.  We need to learn to make hard choices again, and to shrink the government's expenditures.

At root, we need a government that is focused on increasing the American economy.  It is only through economic growth that we increase our wealth - which allows for higher tax collections without an adverse impact.  Conversely, a government that is merely increasing taxes on the small fraction of the population that is working really hard in an ever-increasing effort to satisfy all the needs and wants of a less-motivated population runs the risk of killing the goose that lays the golden eggs - or at least chasing the goose away.

3 comments:

  1. I see this trend as well, but I don't think it's a function of raw tax rates. I actually am "managing partner" at my small law firm in a fairly high-tax state, and my effective tax rate is close to 45%. The rate itself is not a disincentive, but I'm seriously ticked off that I lose that much of my income and I don't have universal health care, the roads between my house and office are full of potholes, and trillions are being shoveled out the door to financial institutions and for foreign adventures at the same time I'm watching friends and family members drown in debt. For that same 45% in many European countries, I would not need to hand 15k a year to my health insurance company and drop another 25k a year into my retirement account.

    That is disheartening. It's not government per se, it's the fact that ours is so perverted, corrupted, and disconnected from what people actually need it to be doing.

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  2. 10:18 - I certainly agree. It's not just the large percentage of your hard work that gets taken, it is also that it does not seem to be spent responsibly. Further, the real kicker is that very few people in the government event seem to view this as a problem, much less have the character to take action.

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