January 06, 2017
I see from the Twitterverse that this NYT column by Robert Leonard, on why rural voters don’t like Democrats, touched some nerves. The main complaint stems from Leonard’s comment that rural voters see themselves as subsidizing the big cities:
“In this view, blue counties are where most of our tax dollars are spent, and that’s where all of our laws are written and passed. To rural Americans, sometimes it seems our taxes mostly go to making city residents live better. We recognize that the truth is more complex, particularly when it comes to social programs, but it’s the perception that matters — certainly to the way most people vote.”
The gist of the angry Twitter comments was effectively “who cares about the hicks’ perceptions, the reality is that the tax subsidies go the other way.”
Well, this might a good teaching moment. Only the ignorati would focus exclusively on tax and spending flows. As everyone who has read the good book (Rigged — it’s free) knows, the government directs income flows in a wide variety of ways that go beyond normal tax and spending flows.
The most obvious is with government granted patent and copyright monopolies. These monopolies are effectively ways in which the government taxes the rest of us to support innovation and creative work. In the case of prescription drugs alone these monopolies add more than $350 billion a year to what we pay compared to the free market price. This is more than $1,000 a year that we are effectively taxing every person in the country to pay drug companies to do research. If we throw in medical equipment it would add another $50 billion a year to this total.
Patents in other areas and copyrights on software and entertainment products almost certainly add several hundred billion more to these figures. While rural areas share in the implicit taxes associated with these monopolies, almost all the benefits go to places like Silicon Valley, New York City, and other major metropolitan areas.
Our broken corporate governance structure, which allows CEOs to rip off the corporations for which they work, also involves a transfer of tens of billions of dollars from the rest of us to top executives, almost all of whom can be found in the nation’s urban areas. The same is true of those who benefit from the special benefits and free insurance (too big to fail insurance) given the financial industry. And, if the rural folks live in one of the twenty plus states that still don’t tax Internet sales, they are effectively subsidizing Jeff Bezos and Amazon at the expense of their local businesses.
In short, if we seriously look at how the government is directing income flows it may well be the case that the hicks are right and the money is going from rural areas to the big cities. I wouldn’t say this is necessarily true because it would involve a lot more work to see how these things balance out. It is also likely that the story differs depending on the region.
But one thing we can say for certain is that the quick reaction of folks dismissing this complaint is grounded in ignorance. The flows of explicit taxes and transfers are just the tip of the iceberg. Maybe one day our intellectual types will be able to understand this fact.
Addendum
It’s probably also worth mentioning in the context of this piece that patent monopolies give drug companies an incentive to be pill pushers to rural (and urban) America.
Comments