Marsh Business Advisors, LLC
"CAPITAL"
"Entitlements" Fail Founding Fathers
By: Stuart Wm. Marsh
President, Genesee Capital, Inc.
July 19, 1996
With the Fourth of July just behind us, you may recall what led up to the Declaration of Independence: Americans were dissatisfied with paying taxes to the ruling government, yet having no say in how the government was run.
How little things have changed in 220 years!
Objections to our current tax system are threefold. One, individuals in this country pay too much in taxes. (Roughly 40 percent of our income goes to federal, state and local income taxes; property taxes; excise taxes; and sales taxes.) Two, the tax system has become a political tool for income redistribution. (Almost half of the money the federal government takes in is given to other people.) Three, the tax system creates disincentives for saving, investing, and job creation.
Since the end of World War II, our rise as an economic power has enabled us to create a safety net for individuals. But in the last several decades that safety net has been transformed into a security blanket - one that can absolve an individual of virtually all personal responsibility.
It is no longer necessary to go to work and to provide for yourself and your family. It is no longer wrong to have a child out of wedlock, even if you can't support it. It is no longer necessary to postpone some current consumption in order to save for retirement. It is no longer necessary to take care of yourself to moderate health care costs. Uncle Sam will do it with welfare, food stamps, Social Security, Medicare, and Medicaid.
Is this what our Founding Fathers envisioned when they wrote the Declaration of Independence?
The hue and cry that will arise is that these social welfare programs are absolutely necessary, and that without them, people will suffer miserably. This is absolute nonsense. These social welfare programs (now tantalizingly called "entitlements'') are so popular and are so widely used for one very simple reason: They're there. They are "free'' to the users, but they are very costly for the payers.
Look at the industrialized countries of Europe and Asia. The European nations have thick, warm safety blankets; extremely high taxation; very high unemployment; and stagnant economic growth. The Asian nations have virtually no safety blanket, extremely low taxation, very low unemployment, and rapid economic growth.
But a personal experience I had was more profound and more instructive, and illustrates the power of hard work, and what pride and the human spirit can accomplish.
One of my cars was getting old and needed some major mechanical and body work. A prospective buyer called asking to see the car. Mike told me he had to be at work from 8 a.m. to 4:30 p.m. and that he had to be home by 5 as his wife worked every night from 5:30 to 10. He also worked Saturdays. Sundays were reserved for the family.
Mike was very easygoing and likable. We started to talk. After graduating from high school he married Jill. He went to work at a car dealership repairing engines; she went to work in an office as a secretary. They wanted a house and a family. But each month they postponed their dream of conceiving a child because they could not afford it.
They saved their money. After several years of hard work they had a little money tucked away and decided it was time. Jill became pregnant. They were ecstatic.
After 10 years of working and learning, Mike last fall opened his own shop. To keep costs down he located it in a very low-rent section of town. It is surrounded by an 8-foot-high chain-link fence with barbed wire. A large German shepherd keeps a watchful eye.
He told me times had been difficult, that business dropped off dramatically over the winter. His friends told him to stick with it, that things would change and business would come back. "That's easy for them to say, but I'm the one that has to feed my family,'' Mike said. Fortunately, business did pick up.
We agreed on a price for my car, and I promised to deliver it the next day. Mike and a friend would repair the mechanicals, spiff up the body and sell it. My guess was that they would split a profit of $1,000.
I went to his house. It was a modest home on a street of modest homes. All the houses and yards were well-kept and neat. He and Jill had chosen the house eight years ago because the price was right, it needed a lot of improvements that Mike could do himself and it was located on a dead-end street, which would be good for children.
I was greeted at the door by Tiffany, a beautiful 2-year-old with a ready giggle. Mike apologized because he was in the middle of some renovations, which apparently were constant. He was thrilled he was making this house a home, but lamented it was taking so long. He only had so much free time, and the materials could only be purchased as the cash became available.
I had to make a phone call. The line was busy, and Mike explained that his 5-year-old son, Eric, liked to take the phone off the hook. I looked into the living room. There, sitting very awkwardly on the floor, was Eric, staring vacantly at the windowless beige wall 2 feet in front of him.
"My boy is disabled,'' Mike said.
Eric came into this world three months too soon, weighing only 1 1/2 pounds. His twin sister followed him minutes later, weighing in an ounce lighter. The doctors and nurses worked around the clock for days trying to give this little girl the opportunity to spend the rest of her life struggling against all the odds.
Eric survived, but not without far more than his fair share of troubles. Brain damage left him unable to speak, and it is not known how much he comprehends. His left arm and left leg do not function; he crawls around using his good arm and leg. He has no natural instinct to eat, so he must be fed through a tube inserted through his navel.
Jill beamed when she told me that Eric was her hero. Mike picked up his son and kissed him. Eric put his good arm around his dad and hugged him and kissed him back. This display of affection was not staged for my benefit, for at that moment I did not exist in their world. The love in that house was deeper than almost anything I have witnessed.
Eric introduced himself to me with a high five. Unable to speak, he communicates more with his eyes than most people do with their vocal chords. This handsome little boy was deprived of many things, but was given the heart of a giant and the soul of an angel.
Mike and Jill have high-school educations. They both have jobs that will never make them rich. They have a son who has physical and mental problems, and will require much care for the rest of his life. Yet Mike and Jill never once complained. They don't think that life is unfair. They don't think that somebody owes them something.
Mike and Jill do not know that they are socially and economically disadvantaged. This is simply because, in their minds, they are not. They decided that they wanted a home and a family, and that they wanted to do it themselves.
They have made a lot of sacrifices, but through hard work, perseverance and determination, they did it themselves. They did it without a handout from Uncle Sam.
The role of government is to provide those things that the free market can't provide for society, and to provide those things that individuals can't provide for themselves. This is very different from providing those things that the free market won't provide, and very different from providing those things individuals won't provide for themselves.
Medicare and Medicaid will go bankrupt in the next few decades. Social Security will go broke a decade or so later. Welfare has created a class of dependents (in fact, a third generation) that cannot comprehend the work ethic. Food stamps are used as an underground currency.
These well-intentioned social programs have un-intentionally created a dependency by those who receive them, and created a burden on those who pay for them.
A major overhaul of social welfare programs and the tax code could well serve as a Declaration of Independence for the next century.