Fundamental Right or "Public Benefit?"

 

 

Wants to Pursue His Vocation

 

Sergio Garcia recently passed the California Bar Exam on the first try and wants to practice law.  There is one problem.  His parents brought him to this country illegally when he was a child, with the result that his presence in the United States is unlawful.  While the California State Bar wants to admit him to the Bar, and the California Attorney General agrees, the Obama Administration is trying to stand in the way.  In particular, the Administration contends that allowing an individual to practice law is a conferral of a "public benefit," akin to an outright grant of money such as student loans, food stamps, or farm subsidies.  (See here for the government's brief).  As a result, it says, federal law requires the California courts to deny Mr. Garcia's application, because states may not grant individuals illegally present in this country such benefits unless the legislature of the state has expressly authorized the conferral of such a benefit.  See 8 U.S.C. § 1621.  

 

The administration's position has some basis in the statute, which defines "public benefit" to include "grant[s]," "commercial licenses" and "professional licenses . . . provided by any state agency or appropriated funds of the state."  See 8 U.S.C.1621(c).  (However, the California Committee of Bar Examiners has authored a powerful response, contending that bar admission does not satisfy the statutory definition of "public benefit.")   Moreover, the characterization of the practice of law as a state-conferred benefit accurately reflects how many members of the Bar view the legal vocation.  No less an authority than the American Bar Association, for instance, asserts that the ability to practice law is a "privilege" that society "confers" on individuals, with the result that lawyers are thereby obligated to provide some members of society free legal services in return.  (See here).  Some academics concur.   See e.g. Deborah Rhode, Cultures of Commitment: Pro Bono for Lawyers and Law Students, 67 Fordham L. Rev. 2415, 2419  (1999) (contending that lawyers' "privileged status" thereby obligates them to provide free legal services to others).  The Supreme Court has generally bolstered this characterization, by refusing to protect vocational liberty against arbitrary abridgments.   Thus, under current law, states may exclude individuals from their chosen vocation so long as a court can identify a single, hypothetical purpose that such exclusion might serve, without regard to whether the law actually serves that purpose.   See Williamson v. Lee Optical, 348 U.S. 483 (1955); United States v. Carolene Products, 304 U.S. 144 (1938) (sustaining ban on interstate shipment of filled milk by invoking baseless and pretextual health rationale).    Indeed, the Supreme Court has in one case rejected an occupational liberty challenges without identifying any plausible purpose served by the restriction.  See Ferguson v. Skupra, 372 U.S. 726, 728-31 (1963).  See also Nebbia v. New York, 291 U.S. 502 (1934) (sustaining minimum price regulation of independent retailers without identifying any plausible object of the law).  Compare Baird v. Arizona State Bar, 401 U.S. 1 (1971) (state cannot exclude individuals from a vocation because of political associations protected by the First Amendment).   One federal court has even gone so far as to hold that states may infringe occupational liberty for the sole purpose of enriching incumbent producers at the expense of consumers and potential entrants.  See Powers v. Harris, 379 F.3d 1208 (10th Cir. 2004).  (But see here for a discussion of a more recent decision rejecting this approach.)   The only exception is for those rare cases in which such exclusion violates an independent constitutional provision.   See e.g. Baird v. Arizona State Bar, 401 U.S. 1 (1971) (state cannot exclude individuals from a vocation because of political associations protected by the First Amendment).  There as a time, of course, when the Supreme Court took a different view, protecting liberty of occupation from infringements that did not serve a valid purpose.  See e.g. Allgeyer v. Louisiana, 165 U.S. 578 (1897) (unanimous). 

Thus, the Obama Administration's claim that a professional or commercial license is properly deemed a "public benefit" that governments generously confer on their citizens has substantial basis in statutory and constitutional law.  While defensible, this argument is still troubling.  After all, no one would seriously contend that the right to worship (or not) as one pleases or the right to write a poem or a song is a "public benefit" that the State can confer or withhold at will, regardless whether the individual exercising the right is lawfully present in the U.S.A.  Still, Congress, other public officials and academics have asserted, with a straight face, that the right to pursue a chosen vocation is no right at all, but instead a form of largess the State may (or may not) shower on its citizens.   The contemporary rhetorical plausibility of this argument illustrates just how far the national and state governments have exceeded the proper scope of regulation in a truly free society.

As previously explained on this blog, however, government exists to facilitate the exercise of liberty, not to restrict it. As James Madison, the cousin of this Blog's namesake, explained in Federalist 10 and elsewhere, individuals leave the state of nature and form governments so as to enhance their liberty, what Madison called "the faculties of acquiring property." To be sure, entering society requires individuals to forfeit a portion of their liberties, thereby empowering the State to restrict some freedoms.  In particular, individuals who leave the state of nature and enter society give up their right to restrict the freedom of others, on the understanding that others who enter society have given up the same rights.  This social contract between such individuals both empowers the state to act but also places limits on the scope of state authority to regulate, tax and spend.  In particular, states may ban murder, battery, theft, fraud and other conduct that harms others and raise revenue via taxation to fund the police and courts necessary to enforce such restrictions.  However, states may not restrain harmless conduct, whether pursued unilaterally or in concert with others, including the pursuit of harmless occupations.  On the contrary, states should facilitate such conduct by protecting property rights, enforcing contracts and the like.  States that do purport to prohibit such conduct and impose taxes to support such regulation do so without any basis in the social contract from which they purport to derive their authority.  

Thus, as Madison put it, in his 1792 on Property:

 

"That is not a just government, nor is property secure under it, where arbitrary restrictions, exemptions, and monopolies deny to part of its citizens that free use of their faculties, and free choice of their occupations, which not only constitute their property in the general sense of the word; but are the means of acquiring property strictly so called."

Thus, refusal to ban consensual transactions that have no impact on third parties is not a conferral of a "public benefit" but instead reflects the State's respect for the limits of the authority granted by the social contract and enforcement of an institutional framework that facilitates the exercise of fundamental freedoms.

No doubt Mr. Garcia's continued presence in the U.S.A. itself raises difficult questions of immigration policy.  Some would argue that, because his parents brought him here as a child, he should remain indefinitely, so long as he obeys the law and remains a productive member of society.  Others would contend that he should return to the country of his birth and join those who are applying through normal channels for permission to enter the United States lawfully.  However one resolves this dispute, one thing should be clear:  Mr. Garcia is not asking for public largess but instead seeks to hold the State to the terms of the social contract that Madison described.  

Should the "Rich" Pay Even More?

Understood the Social Contract

Wants to Breach It

Earlier this week the President defended his plan that would raise taxes on individuals who earn more than $250,000 per year.  Explaining why such individuals should pay more income taxes than they already do, the President opined as follows:

"There are a lot of wealthy, successful Americans who agree with me [that taxes should be higher] because they want to give something back. If you’ve been successful, you didn’t get there on your own. You didn’t get there on your own. I’m always struck by people who think, well, it must be because I was just so smart. There are a lot of smart people out there. It must be because I worked harder than everybody else. Let me tell you something -- there are a whole bunch of hardworking people out there.

If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business, you didn’t build that. Somebody else made that happen. The Internet didn’t get invented on its own. Government research created the Internet so that all the companies could make money off the Internet.”

As others have noted, the President's remarks basically repeat similar arguments made by Harvard Professor and Massachusetts Senate candidate Elizabeth Warren.  As Professor Warren colorfully put it:

"You [businesspersons] 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."

The President's characterization of the relationship between business success and government contains some germs of truth.  After all, individuals leave the state of nature and enter civil society precisely because they believe they are better off with some government than with no government at all.  Moreover, by consenting to live in a civil society, individuals necessarily cede to the larger community a portion of their liberty and a portion of any property they might create or acquire.   In particular, no member of society can exercise his or her liberty or right of property in a way that interferes with similar rights held by others.  As James Madison noted over two centuries ago in Federalist 10, the primary function of government is to protect the liberty and property of each member of society from invasion by others.  Moreover, the same State that protects liberty and property can also execute public works projects that confer benefits on the larger community, projects that no individual or collection of individuals can complete on their own.  Finally, it is not enough that the State protect individuals from each other; the State must also protect itself from external threats by other states.

These various activities implied by the Madisonian social contract are not free; they require the expenditure of real resources. To protect property rights against theft or invasion the state must hire police, judges and prison guards. To enforce contracts the state must hire judges and sheriffs, the latter of whom enforce judicial judgments. To provide national defense or build roads, bridges and other infrastructure governments must levy taxes on individuals and business and enforce those levies with coercion if necessary. Without such coercion, the state would have to rely upon voluntary contributions to pay employees of the State and provide the resources necessary for various infrastructure projects.  It thus seems irrefutable that government and governmental expenditures are necessary conditions for the creation of wealth in the private sector and that government plays a role in the success of every business. (As Professor Warren would say, Ford Motor company cannot make and sell automobiles unless the State protects Ford’s property from trespass by others.  Though it should be noted that individual states, and not the national government, are primarily responsible for protecting factories from "marauding bands.")  

Still, the fact that free enterprise depends upon a well-functioning State that enforces property rights and builds infrastructure does not mean that business owners should feel duty-bound to "give something back" to the State or the larger community.  This assertion, made by the President and many of his supporters, is a non-sequitur.   For, as previously explained on this blog, a State that recognizes and enforces property rights is simply fulfilling its pre-existing obligation under the Madisonian social contract described above; if the State declined to protect property rights and bodily integrity from invasion by others, individuals would have no duty to obey the State's commands.    Moreover, the State does not perform the various functions described above for free, gratuitously showering its citizens with such protections and infrastructure.  Instead, the State levies taxes on individuals and businesses, employing a portion of the proceeds to pay for these various activities.  Indeed, in 2009, individuals in  the top 1 percent of the nation's income distribution paid over 36 percent of all Federal income taxes, that is, 36 times their pro-rata share of government expenses.  Such individuals also paid billions of dollars in state and local sales, property and income taxes.  All in all, then, the "rich" individuals that President Obama and Senator Warren wish to tax even more are already paying their share of governmental expenses several times over.  While such individuals might create more wealth within the free enterprise system than others, such economic success does not alter the terms of the social contract or the rationale for taxation derived therefrom. The state's performance of its pre-existing obligations under the social contract does not thereby justify whatever tax rates the majority might wish to impose.

To be sure, some individuals might sincerely believe that they have an obligation to "give something back."   If so, such individuals should feel perfectly free to increase their donations to charity, overpay their taxes, or both.  However, the fact that some individuals believe they are undertax does not thereby entitle the polity to impose higher taxes on other individuals who already pay far more than they receive in return.

Should Billionaires Like Steve Jobs "Give Back?"

Insufficiently Generous?

Writing in the New York Times shortly before the death of Steve Jobs, Andrew Sorkin asked whether Jobs was a generous philanthropist and, if not, why not. (The essay, entitled "The Mystery of Jobs' Public Giving" can be found here.) As the essay points out, Jobs had a personal fortune over $8 Billion. Moreover, he declined to sign the so-called "giving pledge," orchestrated by Warren Buffet and Bill Gates, whereby signatories pledge to donate a majority of their wealth to charity. Sorkin also claimed that there is little evidence that, pledges aside, Jobs actually gave a significant share of his large personal fortune to charity. Finally, Sorkin asserted that Apple itself is less charitable than many Fortune 500 companies, "despite its nearly $14 Billion in profits last year," and that Jobs closed down the company's philanthropic programs in 1997.

Sorkin finds Jobs' failure to give more to charity "surprising," and also suggests that Jobs has received a sort of free pass not granted other super-rich individuals with meager giving records. As Sorkin puts it:

"But the lack of public philanthropy by Mr. Jobs --- long whispered about, but never said aloud raises some important questions about the way the public views business and business people at a time when some 'millionaires and billionaires' are criticized for not giving back enough while Mr. Jobs is lionized."

Sorkin points to Bill Gates, Warren Buffet and Sam Walton as billionaires who, unlike Jobs, have been criticized for not "giving back" significant parts of their personal fortune to society by making philanthropy a high priority.

Here are some thoughts on Sorkin's essay:

1. Sorkin does us a useful service by pointing out the double standard applied to billionaires on the question of philanthropy. Why criticize Warren Buffet or Sam Walton for miserly giving records, while leaving Jobs unscathed? Moreover, this blogger agrees with Sorkin that there IS such a double standard, that is, that some individuals, such as Jobs, somehow avoid public criticism for a perceived lack of charity while others with similar records come under fire.

2. However, identifying a double standard and thus concluding that the same standard should apply to all simply begs the following question: what should the standard be? Should billionaires feel obliged (albeit in some unenforceable way) to "give back" a large fraction of their after-tax wealth to charity? Is criticism directed at other billionaires fair? It's reasonably clear what Sorkin thinks, namely, that all billionaires, including Jobs, should feel some sense of obligation to "give back" significant portions of their personal fortunes to the rest of society, presumably in a way that benefits individuals with more modest financial means. At the same time, Sorkin does not expend much effort arguing this case, but instead seems to take as a given that such an obligation exists.

3. Do all billionaires necessarily possess such an obligation to "give back" to society? This blogger doubts it. For one thing, the characterization of charitable donations by billionaires as "giving back," while common, is morally problematic in a free society. Mr. Jobs (and, for that matter, Mr. Gates and Mr. Walton) did not "take" their wealth from society. Nor did society "give" them that wealth or gratuitously shower it upon them. Instead, they earned that wealth, by cooperating with others to create products and services that individuals voluntarily purchased in free markets. It thus makes no sense to refer to charitable donations by such billionaires as "giving back," as though they are returning something they have passively received. The mere fact that individuals possess wealth does not thereby oblige them to give it away, though many do. Such donations are giving, plain and simple.

4. To be sure, society creates and enforces various background institutions and rules that help facilitate the creation and retention of wealth. Without property law and police protection, for instance, Sam Walton's Wal-Mart could not earn a profit buying and reselling products manufactured by others. Without the protection of copyright law, a form of property, Microsoft could not make several billion dollars per year selling its Windows operating system. As Nobel Laureates Ronald Coase and Friedrich Hayek both recognized, the "free market" in fact depends upon institutions of private property and contract law, both institutions backed by state force.

Still, while various forms of state action might be necessary to make the free enterprise system function, this does not mean that successful entrepreneurs or the companies they create owe some special obligation to share their wealth with others. After all, when it creates and supports various market-supporting institutions, the State is merely satisfying its most basic obligation under the social contract. Under that contract, individuals leave the state of nature and grant a portion of their natural liberty to the larger community. In return, the State creates and enforces property rights and rights in personal security, sometimes interfering with the liberty and property of those who would invade such property or security in the process. Such interference can include taxation that is necessary to support legitimate government activities, such as police forces, courts and the like, activities that facilitate the creation and operation of free markets and the wealth they produce. As James Madison explained in Federalist 10, government exists to protect liberty and property:

"The diversity in the faculties of men, from which the rights of property originate, is not less an insuperable obstacle to a uniformity of interests. The protection of these faculties is the first object of government. From the protection of different and unequal faculties of acquiring property, the possession of different degrees and kinds of property immediately result[.]."

In a free society premised on a Madisonian social contract, economic success does not oblige one to turn over a portion of one's wealth to the larger community. Wealthy individuals discharge their obligations to the State when they abide by general laws, including laws requiring the payment of taxes. Indeed, billionaires such as Mr. Jobs presumably paid far more to the State in taxes than the state expended to protect their property and personal security. Neither the State nor the larger community may invoke the satisfaction of its pre-existing obligation to protect liberty and property as justification for demanding even more.

5. Assertions that these billionaires have not done enough for society ignore the enormous contributions they have already made. Mr. Jobs did not find $8 billion in his backyard. Instead, he created and led a company that created numerous products that individuals chose to purchase voluntarily. No one was forced to purchase an I-Pad or I-Phone. Moreover, the $8 billion that Mr. Jobs amassed represents only a fraction of the value that Apple's products conferred on those who purchased them. (Because demand curves are downward sloping, we can assume that most individuals would have been willing to pay more than the market price for Apple's products.) Moreover, as already mentioned above, billionaires like Mr. Jobs and the companies they run pay far more in taxes than the State pays back to them; presumably the State redistributes what is left over to others. Admonishing individuals like Mr. Jobs to give even more to others almost seems like "piling on."

6. None of this is to say that NO billionaire owes a duty to "give back" a portion of his or her fortune to the rest of the community. Some may have obtained their fortunes unjustly, as when the State grants a firm a monopoly and thus the power to gouge consumers. Others may have religious beliefs that require them to share the wealth they have created with others. Finally, some may believe that a free society flourishes when institutions that are independent of government take on charitable responsibilities that government would otherwise assume. Indeed, as explained previously on this blog, some believe that a decentralized system of higher education, independent of the State, is essential for a free society to flourish. Such individuals may feel bound to create or support private charitable institutions. None of these considerations, however, establishes that billionaires have an obligation to "give back" simply because they have amassed a large fortune.