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Jun 22, 2012

Should the Taxman Come for Karen Klein’s Windfall Profits?

Karen Klein is, as I’m sure you’ve all heard, the Greece, New York bus monitor who, after video of her being cruelly bullied made it onto the internet, reaped a windfall of emotional support from people all over the world.

She’s getting windfall profits, too. Someone on the crowdsourced funding site Indiegogo launched a campaign to send Klein on the “vacation of a lifetime.” With 29 days to go, Klein’s well on her way to much more—a lifetime of vacations. The campaign, as I write this, has collected $542,009, and more is pouring in at a rapid clip.

There’s nothing wrong with that. In fact, it warms my voluntaryist heart to see people, without government coercion, giving to support a complete stranger. This is the sort of giving I think we’d see more of if the state weren’t crowding it out.

But then came this. A well-meaning supporter of Klein’s, feeling like she should get every penny donated to her and believing—erroneously, it turns out—that the government would tax away a large chunk of her windfall, set up a petition to have President Obama “use his executive power to grant Karen Klein a waiver of all income taxes and any other federal taxes that would apply to the funds being donated to her through this fund.”

Of course, Obama doesn’t possess such an executive power and the small gifts aggregating to Klein’s enormous reward aren’t taxed anyway. But the very fact that this petition existed, that it garnered 7,624 signatures before ending, and most strikingly the motivations supporters articulated for signing it all add up to an awesome display of cognitive dissonance.

Jairo Navarrete says she signed because Klein “deserves every penny.” Ashley O’Brien says, “I do not believe that Karen should have to pay taxes on this money, it is being donated to her for very good reason and she deserves ever [sic] single cent of it.” And so on. “Deserves” shows up constantly throughout the comments.

Which is awfully weird. Here are thousands of people basically making the argument that if earnings are deserved, they shouldn’t be taxed—which implies that if earnings are (legitimately) taxed, they aren’t deserved.

I assume nearly every petitioner earns a paycheck somehow, out of which the government takes some cut in taxes. Does this mean all these people feel their own earnings are undeserved? How are we to distinguish between deserved and undeserved profits?

Shannon Kaopuiki, another signer, hints at an possible answer. “People are wanting to help Karen so she should be able to get every last cent,” Kaopuiki writes. “She deserves all the money that people want to give her.”

So deserved earnings are those that people wanted to give you. That I can get behind. In fact, it’s roughly the foundational theory of the free market economy. Sellers offer up their goods and services and buyers, wanting those goods or services more than they want the amount of money equal to their price, voluntarily hand over cash for them. A mutually beneficial exchange occurs.

Except a great many folks out there don’t think the profits arising from voluntary transactions are deserved—at least not if “deserved” means in part that the government shouldn’t collect taxes on them. “He deserves all the money that people want to give him,” wasn’t the typical response to Eduardo Saverin, after all.

And this is strange because, when we get down to it, it seems that perhaps capitalists deserve their earnings more than Klein does. What happened to her was awful and it’s wonderful that people want to help her out. But she didn’t give those people anything in return for the $542,009 (and growing!) she’s gonna get. Business men and women, on the other hand, don’t just have their earnings voluntarily given to them. They also gave something voluntarily back in return. Further, because the buyers were willing to give their money to the sellers, the buyers must have valued what the sellers gave them even more than they valued the given-over money.

Maybe I’m reading cognitive dissonance into a situation entirely lacking it, though. Maybe the sentiment being expressed in the Karen Klein petition is, rather, that all deserved earnings shouldn’t be taxed and that almost all of us deserve our earnings. If that’s true—if that’s what so many people believe—then the future’s looking a lot more libertarian than I thought.