President Obama has a new role model for his Buffett Rule tax—Henry Ford. It’s an odd choice considering that Ford advocated free-market capitalism and opposed redistributive policies.
Despite the lucrative government contracts, Henry Ford refused to participate in FDR’s 1933 National Recovery Act. (Let’s not forget that Ford Motors was the only “big-three” automaker to decline the recent government bailout.)
So why cite Ford as support for a redistributive “fairness tax”—especially one that discourages investment in the sort of successful companies that Ford worked to create?
In his stump speech for the Buffett Rule, Obama argues that Ford was a progressive who understood that “prosperity has never trickled down from the wealthy few.” Accordingly, Ford paid high wages to redistribute his unwarranted profits to the middle class.
Yes, Ford’s $5-a-day wage in 1914 (a little over $100 by today’s measure) was more than double the average autoworker’s pay. And yes, Ford felt a personal moral obligation to pay his workers well and help reduce poverty (what he called “welfare capitalism”). But paying high wages to valuable employees wasn’t a redistributive plan—it was good business.
“We were not distributing anything,” he explained in his autobiography. “We were building a future. A low wage business is always insecure.” Ford needed the $5-a-day wage to attract and retain skilled workers and stay ahead of his competitors. He estimated that the high wage reduced the number of new employees he had to hire and train by 200,000 people per year.
Henry Ford was the Steve Jobs of his day, and cars were iPods of the 1920s. Just as Apple pays high wages to engineers to produce cutting-edge gadgets, so Ford paid high wages to retain skilled labor to build cars. Ford paid these wages because the market allowed—nay, demanded—them. Far from driving a top-down progressive policy, Ford was effectively responding to the needs of the market.
And how did Ford react to blatantly redistributive policies? “I do not think that this country is ready to be treated like Russia for a while,” Ford said of the New Deal. “There is a lot of the pioneer spirit here yet.”
That sentiment applies to the Buffett Rule. The rule would impose a 30 percent alternative minimum tax rate on all income (now defined to include wages, capital gains, and dividends) above $1 million. The Buffett Rule would stifle American industriousness and weaken the economy by discouraging investment, all while reducing the deficit by a mere 0.5 percent. Worse than the policy outcome is the destructive hubris underlying the proposal: the Buffett Rule assumes that only government redistribution can help the middle class.
Obama learned the wrong lesson from Ford’s $5-a-day wage. Ford created remunerative jobs for the middle class not because of stringent progressive regulations and redistributive programs but because his company had the freedom and the flexibility to respond to the needs of market.