What Social Contract?

Does America have a social contract? If so, is it broken?

Does America have a social contract? If so, is it broken?

This conversation kicked off last month when Warren Buffett said we should tax people like him more and is gaining steam with Obama’s call for a millionaire tax.

Steve Benen is excited by a recent speech by Massachussets Senate candidate Elizabeth Warren, erstwhile consumer protector tsar for the Obama administration and professor at Harvard Law, in which she articulates the argument in broader terms:

“You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did.

“Now look, you built a factory and it turned into something terrific, or a great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.”

Internet billionaire Mark Cuban, the owner of the NBA’s Dallas Mavericks, sounds a similar theme on his personal blog:

I DO NOT like paying more in taxes. HOWEVER, I think that this country has created unique opportunities for entrepreneurs and paying taxes is a small price to pay.  Taxes are not a bad thing.  What bothers me are not the taxes I pay to help others and to support the services our country needs. What bothers me is the  mis-allocation and inefficient distribution of our tax money. Particularly when it leads to taking more money from those who can not afford it, and in this economy, even those making 250k per year can not afford it.

[…]

I do think billionaires should pay more. We have benefited the most financially from this great country, and it is the right thing to do to give more back in a time of need.  I believe those of  us who have achieved windfalls in the stockmarket should pay more as well.  My tax rate back in 2000 was far greater than today, and I had no problem with it. My tax rate when I sold my first company in 1990 was even higher. I had no problem with it.  Nor should any entrepreneur or investor who makes the big score. As I said in my last blog post, it’s a great problem to have.

 

As I noted in my recent post on the history of  American income tax rates, when the federal income tax was first instituted in 1913, we only taxed those at the very top of the wealth scale. And even when we spread the misery down the ladder, we maintained for decades confiscatory rates–as high as 92 percent. Now, we’re down to a top rate of 35 percent and there’s probably less of a sense of duty to the have-nots than ever.

At the same time, roughly half the country pays no federal income taxes at all. They pay into Social Security and Medicare, which are more regressive, but they get back everything they pay into the general Treasury. Arguably, that means those people have little stake in society; they benefit from the federal government and its programs but don’t have to pay for it.

At least tangentially related to all this is that, with the end of the military draft in 1973–and arguably before, given the Vietnam era rules that created all manner of exemptions that benefited those higher on the social ladder–we’ve lost the sense of obligation to one another that came with that shared sacrifice. I’m strongly against re-institution of the draft, for reasons I’ve laid out in detail elsewhere, but the social side effect of not having it is nonetheless lamentable.

Is there a social contract wherein we owe things to one another? If so, what is it that those who have been more successful economically–or luckier in terms of health and the like–owe to those less fortunate?

FILED UNDER: *FEATURED, Politics 101
James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. Hey Norm says:

    “…roughly half the country pays no federal income taxes at all…”

    Because they are friggin’ poor, or elderly, or sick.
    [there are a relative handful who make a boatload of money and pay no taxes]
    Should a guy that makes $20,000 a year really be required to pay $3000+/- of it in federal income tax…on top of all the taxes he already pays? I think the EITC is part of our social contract…as it has essentially filled in for welfare after welfare reform.
    I know Jan is on record as saying that taxing these folks is the way out of our economic woes…but I don’t see it.

  2. john personna says:

    Human cultures always have a variety of social contracts, many of them invisible, and (this is key) some of them in conflict.

    Heh, arguments about invisible contracts will always be tricky.

  3. john personna says:

    (Note that when libertarians sketch out a vision of how charities will provide for the downtrodden, they also, are pitching a social contract.)

  4. I think the contract needs to be renegotiated. Why is income the only thing being redistributed, when there are so many other resources unevenly distributed in our society?

    For example, I will agree to a tax increase, provided that people with an unequal share of popularity be required to attend board game night.

  5. Boyd says:

    And let’s not even start on the unfair advantage of sexual appeal, which is most certainly a gift, as opposed to earned income.

  6. mattb says:

    It seems to me that this discussion also needs to include a real consideration of two things beyond our ethical, moral, and social ties to each other:

    1, The idea of a shared commons and a serious question about how the generation and sustaining of wealth on personal and business levels is tied to access and exploitation (not necessarily in a pejorative sense) of that commons.

    2. The reality that while there is a personal component to success, there are also social and luck factors that go into it (both being largely outside of the control of the individual). This of course requires a really uncomfortable(*) discussion about how factors like race, class, sexuality, intellegence and radical contingency — some of which are starting conditions, others life long — not only start some people out far further ahead but also can stack the deck heavily against others.

    (*) — the discomfort I’ve seen from conservatives(**) on this issue is the question of “institutionalization” of these issues (ie that, for example, an insititution can be racist without the majority of it’s members being racist). Michelle Bachmann’s take on history is a great example of the typical conservative response.

    (**) — to be fair, many Liberals make the mistake of assuming that institutional racism is way too intentional, which is used to safely attack people versus the larger structure.

  7. Victor says:

    There’s a Youtube video where some students are attending some class. Sitting in pairs. At the front row, two male friends with two male colleagues sitting on the back row. At the front row, one friend disguises a slap to the friend’s head. The friend jumps off the chair, takes the shirt off, and hits the guy sitting right behind him who had done nothing. I wonder whether they had had bad blood that needed to be settled. But sometimes people just don’t like each other.

    The Social Contract means that the society has to work whether you like all people in it or not. Don’t go punching people who have done nothing to you.

  8. ponce says:

    They pay into Social Security and Medicare, which are more regressive, but they get back everything they pay into the general Treasury.

    ????

    I didn’t realize some people get refunded the Social Security and Medicare taxes.

    Is that something new?

  9. Boyd says:

    @ponce: Nyuck, nyuck. You’re funny. I don’t think for a second that your the idiot you’d have to be to not understand what he meant, so you must be making a joke.

    Man, I miss The Three Stooges!

  10. ponce says:

    Nyuck, nyuck. You’re funny. I don’t think for a second that your the idiot you’d have to be to not understand what he meant, so you must be making a joke.

    Call me an idiot, but I truly have no idea what James is referring to here.

  11. Boyd says:

    @ponce: So, you really think that people only pay into Social Security and Medicare, and never get paid from them? Really?

    No, you don’t. That’s why you’re not an idiot.

  12. Hey Norm says:

    “…the unfair advantage of sexual appeal…”

    Yes Boyd, but I suffer under the weight of that blessing everyday. No gift is free.

  13. Moosebreath says:

    Boyd (and James),

    Let’s put it another way. If someone paid in Social Security taxes every year but died at age 60 before collecting any benefits, does his estate have a claim against the treasury for a refund of his SS taxes? If not, then how can James say “but they get back everything they pay into the general Treasury”?

  14. James Joyner says:

    @Moosebreath: Because Social Security and Medicare aren’t part of the general Treasury pool; they’re separate entities. While there’s no true “trust fund,” the money is put into government bonds and treated separately from an accounting standpoint. (Hence, my use of “general Treasury” vs. “federal government.”)

  15. ponce says:

    So, you really think that people only pay into Social Security and Medicare, and never get paid from them? Really?

    Yes, many American don’t live long enough to collect from Social Security or Medicare.

    And many Americans are fortunate enough to never have to collect Medicare benefits.

  16. Jay Tea says:

    @Hey Norm: Because they are friggin’ poor, or elderly, or sick.
    [there are a relative handful who make a boatload of money and pay no taxes]
    Should a guy that makes $20,000 a year really be required to pay $3000+/- of it in federal income tax…on top of all the taxes he already pays? I think the EITC is part of our social contract…as it has essentially filled in for welfare after welfare reform.

    But we’re talking about having EVERYONE pay their fair share, and asking EVERYONE to contribute to the running of our society. I’ll excuse a certain amount of means-testing, but if there are people who contribute absolutely nothing while others are constantly “asked” (read “demanded under threat of force”) for more and more and more, it sounds a hell of a lot like “from each according to their ability, to each according to their needs.”

    If there is a significant percentage with no ownership stake, with absolutely nothing invested, then there is absolutely no reason for them to not demand more and more. Likewise, if one’s “contribution” is only limted to “whatever we need and think you can bear,” that’s also a recipe for disaster.

    Now, Norm, you get to explain how I misunderstood you and you didn’t really mean what you said…

    J.

  17. MBunge says:

    @Jay Tea: “if there are people who contribute absolutely nothing”

    “If there is a significant percentage with no ownership stake, with absolutely nothing invested”

    Hating the poor. A conservative tradition since 3057 BC!

    Mike

  18. Hey Norm says:

    JTea…
    They do not contribute nothing…they pay no federal income tax. If your argument is based on factual misinformation it’s not much of an argument.

  19. WR says:

    @Jay Tea: One wonders exactly what it is Jay Tea imagines he contributes to society.

  20. DRE says:

    Only part of the our participation in society is economic. For those who get little reward from the economic system, little is expected in terms of taxes. Many people who pay little in taxes have a much greater contribution in non-economic terms. Volunteering, helping neighbors, teaching …
    To focus purely on taxes to measure “fair share” reduces society to a mere skeleton.

  21. Moosebreath says:

    James,

    That did not answer my comment at all. Would the person who died at 60 (without widow or children to avoid issues with survivors benefits) have a claim against the Social Security trust fund?

  22. lunaticllama says:

    As Hey Norm pointed out, paying no federal income tax is not contributing nothing. If you assume people never drive and essentially have no material goods, then sure, they don’t contribute anything, but that’s because they aren’t participating in the market economy that is at the center of American life (whether it’s business, politics, etc.)

  23. Ron Beasley says:

    We are a tribal species and have a genetic tribal social contract. There is a name for those who don’t recognize this – sociopath. That said there are a few people who contribute little if anything to the tribe. In tribal societies they would have been abandoned or driven off. The problem is how do identify the real non productive members of society? Many appear to be non productive because they never had the opportunity to be productive. This is a social problem – it’s hard to get out of a hole. Exceptional individuals manage to do it but exceptional individuals are the exception not the rule.
    OK, I admit I have offered a philosophical rant without any solutions but a social contract is part of what makes us human.

  24. ponce says:

    If you assume people never drive and essentially have no material goods, then sure

    Considering 25% of the homeless are veterans, I’d have to disagree with your assertion.

  25. anphang says:

    I don’t know where the Definitive American Social Contract currently stands, but my two cents is that history has shown that it works best when it merely makes possible and accessible that which it wishes to happen, and to let the nation itself do the heavy lifting. With a modern, sophisticated economy, with three hundred years experience, we don’t need to get much more defined than this except on particular issues. To my mind, this necessitates a strong commitment to economic independence and upward mobility, but that’s a debatable part.

    As far as this very broad, very basic notion applies to taxation, I will say it’s not like there’s a magical asterisk that denotes all federal taxes. If one does not make enough money to pay income taxes, one may still pay property taxes – and while the guarantees of the federal government may seem abstract and difficult to quantify, schools and roads most certainly are not.

    To me, this confusion between state and federal taxes, compounded with additional confusions as to the presence and origin of federal and state spending programs, makes the debate about the issue of personal investment in the nation completely unanswerable. My experience in and around, for example, the service sector has shown that the hours and the pay make it a persistent effort just to stay abreast of the news, much less worry about the utility of those portions of my paycheck that go into Not Social Security. Have I then become less invested in the good governance of my country? Certainly – but not in any way that would be solved by raising my taxes.

  26. James Joyner says:

    @Moosebreath: Social Security is, at its heart, a retirement insurance program. The nature of insurance is that some people net a lot more than they put in and others pay a lot for nothing. If you pay Allstate $500 a year for 25 years and don’t get into any accidents, they don’t owe you anything. Similarly, if you die the day before you’re eligible for Social Security and don’t have a surviving spouse, you’re one of the unlucky ones. (My father died at 66, so he didn’t even get his actual dollar contributions back. But my mother will hopefully collect her portion of his benefits for many years to come.)

  27. Moosebreath says:

    James,

    I agree with your last comment, but that’s very different than saying “They pay into Social Security and Medicare, which are more regressive, but they get back everything they pay into the general Treasury.”, which was mine (and I believe ponce’s) point.

  28. James Joyner says:

    @Moosebreath: Again, the point of that sentence was that they’re not paying income taxes. Most people don’t comprehend that fact because federal income taxes are withheld from their checks. But half the country pays no net income tax after filing.

    Payroll taxes (FICA and Medicare) don’t go into the general treasury; they’re “separate” accounts.

  29. Moosebreath says:

    Janes,

    So what are they getting back which they paid into the general treasury?

  30. James Joyner says:

    @Moosebreath: A tax rebate of everything they put in. We create the illusion that everyone pays income taxes by a system of withholding from paychecks. But roughly half the country gets it all back. And most of those people aren’t “poor,” either by our technical definition or an average person’s conception of what the word means.

  31. Stan says:

    To my best knowledge, when the federal income tax was introduced in 1916 no tax was levied on households with adjusted gross incomes less than $3000. That was an awfully good wage back then, about twice as much as Henry Ford’s famous $5 a day, and I’d be surprised if the percentage of people paying a federal income tax was higher in 1916 that it is now. If I’m right, the only new thing about the fact that 40% (or whatever) of the public didn’t pay federal income taxes in 2010 is its discovery for polemical purposes by the political right.

    Unlike other developed countries, the US provides financial support for the poorer half of the nation through the tax code rather than maintenance grants. Another way we differ is that a significant part of our public, well represented in the contributors to this blog, feels that the proper approach to our economic difficulties is to tax the poor more and the rich less. I can’t see the rationale for adding even more misery to the problems of the poor by taxing them more. Aren’t they punished enough by being poor? Apparently not, in many people’s view.

  32. Moosebreath says:

    James,

    I think I am with you now. You are saying in two different ways in consecutive sentences that they pay no net income taxes.

  33. James Joyner says:

    @Stan: That’s what I was trying to say in the first substantive paragraph after the quotes: It used to be accepted practice that the well-off paid the whole freight. Somewhere along the way, the well-off came to resent it. I don’t know if it’s because New Money and Old Money come with different attitudes or what.

    @Moosebreath: Yeah. I don’t want to perpetuate the myth that they pay no federal taxes–most pay a big chunk to FICA and Medicare–so the second sentence is a qualifier to the first.

  34. Moosebreath says:

    Thanks, James, both for the clarification and acknowledging that the no federal taxes line is a myth.

  35. mattb says:

    @James Joyner @Moosebreath: @john personna and other people more gifted at econ than myself…

    On the “most pay no taxes because we get it all back” and therefore don’t support the federal system… isn’t there an argument that while those people get “their money back” at the end of the year they are still “contributing” to the government in the form of the interest earned (deferred) by the government on the money that is withheld?

    I seem to remember a number of Get Rich Slowly types arguing that it’s better to set one’s self up for the lowest possible pay check witholding (even if it means paying at the end of the year) because then you — not the government — get the benefit of accruing that interest over the course of the year.

    If that’s the case, it seems a little disingenuous to suggest that people who get a full refund are not contributing to the federal tax system.

  36. john personna says:

    @mattb:

    Sure, the withholding float would allow the government(s) to borrow a bit less and save on interest costs. Also (this one is very slim) since the value of dollars returned has been reduced by inflation, they gain a bit more.

    But I think those are pretty small factors. If someone did manage to get all their various forms of taxes back again, the benefit to government(s) would be minimal.

    (It might matter more in a world with 5% savings accounts. Remember those? 😉

  37. mattb says:

    @john personna:
    I wasn’t suggesting that it’s a huge benefit (or even a moderate one). But in a topic that alternates between talking points and complex minutia, it just occurred to me that this is something worth bringing up — namely that the money that’s withheld from everyone’s taxes is sustaining the day-to-day government (even when people get it back at the end of the year).

    Mainly I was looking at routes for thinking about the alleged non-contribution of certain people to the Federal Government.

  38. Steve Verdon says:

    @Hey Norm:

    Uhhmm no. I don’t think the bottom half of the income distribution are all poor. Some of them are, but defining the poverty rate at 50% is pretty much nonsense.

  39. mattt says:

    Race has had a bigger role in undermining the social contract than some want to admit. I wasn’t there to see it, but my impression is that back when America was a “white country” with a few non-whites hidden off the margins, the well-off were more willing to carry the load of taxation, and accepting of the government as the proper agency to apply their contributions toward the needy through Social Security and the New Deal policies. Since the 1960s, the Civil Rights movement, integration and Great Society programs, resentment among the well-off seems to have grown as they perceive their taxes going toward the support of “others.”

    I think this extends even beyond safety net programs. When the country was perceived as more homogeneous, the social contract seemed to be stronger in issues such as the well-off carrying the lion’s share of the cost of defense, infrastructure, and etc.

    I’m not calling anyone racist, and I don’t believe the typical tea partier is racist as most most understand the word. But increased diversity in American society seems to have have tracked with a reduced willingness to pool resources and work together.

  40. snarky bastard says:

    @mattb: That is a stretch of a definition, especially at very low interest rates right now (US 1 year T-bills have an interest rate of 0.10% so it takes $1000 to make $1 dollar over a year). In a situation where short term rates were 15% to 20% (Volker), then the short term loan opportunity cost argument has some grounds beyond theoretically to stand on.

    Regarding the Get Rich Slowly crowd — they’re right as long as the individual who is making minimal withholding payments has the discipline to invest their money in interest bearing but risk free assets. In today’s environment, there is minimal value of doing that as interest rates on savings are so low, but again, in a higher interest rate environment (3% or more IMO), it could be worth doing as long as one knows that one is very disciplined.

  41. mattb says:

    @snarky bastard: Thnx… I hadn’t even thought about interest rates. I have a number of the Get Rich Slowly books which I’ve largely found to be well laid out treatises for everything that I’ve done wrong in my financial life. Ah Protestant/Capitalist guilt.

  42. mattb says:

    @mattt: Really nicely put! Slight build on an generally correct statement:

    I’m not calling anyone racist, and I don’t believe the typical tea partier is racist as most most understand the word.

    I’d shift it slightly, I think the average tea partier isn’t necessarily racist (and surely doesn’t understand themselves as such) – but I think that there is a heavy bigoted/tribal undertone to the movement as a whole.

    But my suspicion that at the foundation is economics (which then is channeled into demographics). It seems to me that a foundational fear driving Tea Party members is that they have fulfilled their part of the assumed social contract, their just rewards (i.e. American Dream as it’s understood as a necessary result of hard work) is being stolen.

    Hence “I don’t want socialized medicine, but keep your hands off my medicare” is very much about the concept of “I’ve earn the medicare through hard work” but “socialized medicine” is about giving my hard work to >insert thieving other here<.

    As far as why so much of this comes across as race — I suspect that, for a lot of cultural reasons, we're really uncomfortable about talking about class. Likewise we've been founded on the myth of the invisible hand of the market (not to mention myths of the freeing/prosperous power of.. well… freedom). So rather than have serious discussions about those issues conversation is driven to easy targets like "Class Warfare" and "Welfare Queens."

  43. mattb says:

    @mattt: One other interesting though…

    But increased diversity in American society seems to have have tracked with a reduced willingness to pool resources and work together.

    Also note that it has increased with the move towards suburbanization and an overall increase in valuing personal privacy.

  44. Eric Florack says:

    As a friend said recently….

    “The social contract” is a cynical theft of the concept of division-of-labor economy. It is a false equivocation.”

    The Social Contract as it’s called is an excuse used to grow government. Government is not charity, people. It is force.

    Consider Adam Smith, in Wealth of Nations:

    “It is not from the benevolence of the butcher the brewer, or the baker that we expect our dinner, but from their regard to their own interest..” ~ Adam Smith