Don't try to tax the rich! What am I missing here?

by Myles Spicer | August 4, 2009 • When the Obama administration suggested that perhaps a modest surtax on America’s top 1 percent of the wealthiest individuals might be a way to pay for health care reform ... you might have thought that Lenin himself had risen from his tomb to again attack Capitalism. Indeed, the proposal was so modest, so benign, and so fair that the strong negative response baffled me. What am I missing here? To recall, what was suggested (though there were variations) was 1-5% surtax on only the top 1 percent earners. Roughly this involved folks earning from about $350,000 (a starting 1% surtax); to those in the top .01% whose average incomes were $5.6 million; and those in the top .001% whose average incomes were $25.7 million annually (all figures from 2005 statistics). It was estimated that the modest surtaxes on these wealthy and super wealthy groups could raise about $500 billion, or about half the estimated cost so that all Americans could have accessible, affordable health care! But it was not to be – the hue and cry that any taxes, or the mention of taxes, or even the thought of any more taxes, was forbidden, frightful and unattainable. What am I missing here? In March 2006, Forbes reported there were 793 billionaires in the US with combined net worth of $2.6 trillion. In March 2007, Forbes reported 946 billionaires in the US with combined net worth of $3.5 trillion. That is a 1-year increase of 19% in the number of billionaires and an increase of 35% in their net worth. Presumably, many of this group was in the top .001% of income as well; and a 5% surtax on an average income of $25 million would be an extra $1.25 million in taxes. With at least several thousand million dollars left in their bank accounts, and more coming in daily, I cannot see how surtax could affect their lifestyle even minutely. The enlightened super wealthy, like Bill Gates and Warren Buffet, have come to that very conclusion. For those in the lower group of the top 1 percent (those in, say, the $350,000 bracket), the 1% surtax would reduce their incomes by a measly $3500. They too, could manage quite nicely with the remaining income. Meanwhile every American man, woman and child would have the health care and medical treatment a great country should offer, as is common in all other industrialized nations. So, what am I missing here? Now, I am going to print some very bad words – so send the kids out of the room: income redistribution! That’s pretty much what a lot of this is about, and de facto, part of what taxes do. Taxing the wealthy to help the less fortunate. In the most recent figures, the top 1 percent of Americans own about 42% of the wealth in our country; the next 19 percent own about 50% -- that leaves about 8% for the entire lower 80% of all Americans. What is most pathetic about the rejection of placing a modest tax on the very wealthiest among us, is that such a tiny amount redistributed from top to the bottom, would make such a significant improvement in our country’s health, wellness, and ethical governance. Regarding income distribution (as differentiated from “wealth”), Americans have the highest income inequality in the industrialized world, and over the past 20–30 years Americans have also experienced the greatest increase in income inequality among rich nations. Between 1979 and 2005, the mean after-tax income for the top 1% increased by 176%, compared to an increase of 69% for the top quintile overall; 21% for the third quintile, 17% for the second quintile and 6% for the bottom quintile. Conservatives rail against adding taxes, and point out that the top brackets already pay most of the taxes. Of course they do -- the poorest among us have little or no money! As bank robber Willie Sutton said when asked why he robs banks, replied: “because that’s where the money is.” What am I missing here? Moreover, a small surtax would address one of the most egregious examples of greed in our country in a way that would help preserve Capitalism and its principles. That is the obscene bonuses recently paid to Wall St. executives – the bonuses that virtually all Americans abhor and criticize. Nine banks who received TARP money gave employees $5.33 billion in bonuses in 2008. Over 4800 of these banking executives received more than $1 million each! While Congress is swiftly trying to cap such outrageous actions, wouldn’t it be a simpler, easier, more useful way to stifle this behavior by just taxing these excessive payments, and returning money to the Treasury for deficit reduction, or again, to fund health care. It creates a natural disincentive to pay obscene compensation amounts; and, it is a better way than government meddling in private sector compensation. What am I missing here? If my logic is so strong, and yet I seem to be missing the point, perhaps I should explore why there is such resistance to the surtax idea. Maybe it is because I fail to understand those who oppose it. So, who are they? Well, first among them are those ideologues who live and die by promoting Capitalism as a strictly laissez faire economic system – any taxation is undesirable, and the less the better. Then there are those who see government as an enemy and have no compunction against funding it with as little as possible – perhaps to see it fail. Finally it is a well known fact that it is the wealthy and super wealthy who heavily fund political campaigns – and taxing that group scares the politicians of both parties as elections come due. In our political system, unfortunately, money talks...and big money talks the loudest. I understand that maybe I am not missing a thing!

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The rich are always aggresive in protecting their fortunes

For the wealthiest Americans any hint of increased taxes sounds an alarm of impending threat. Those who have spent their lives compiling fortunes, for whom the pursuit of wealth is the highest priority in life, tend to be obsessive about protecting every last dime of their fortunes. For them, a modest tax increase today signals the probability of another tax increase in the near future, and soon another, and another. Before you know it, they may have only half as many millions (or billions) of dollars to spend and invest and bequeath to their offspring. This thought sends them into a panic. (Those who are rich due to inherited money often do not feel so strongly that they have earned their wealth through their own talents and efforts, and so tend to be somewhat less obsessive about holding on to every penny of their wealth, and more likely not to vigorously oppose increased taxation.) Most wealthy people rationalize their anti-tax position by invoking various economic and libertarian philosophies (taxing personally-earned wealth is wrong in principal, is a disincentive to work, dampens investments and inhibits job creation, etc., etc.) But these are just rationalizations. In truth, their aggressive opposition to paying a fair share of social maintenance is simply a greedy and anti-social response arising from an unbalanced obsession with money (and the belief that money is the only meaningful index of life's value). One cannot reason with such people. One must simply defeat them politically.

On Balance

The left needs to be as militant as the right in order to balance the debate. We need to be arguing for an aggressive inheritance tax, union rights and living wage policies. We need to be defining the parameters of the national conversation and we haven't been. We've been brow-beaten by the term "political correctness" as if there's something wrong with having respect for other people, as if there's something wrong with defending something other than self-interest. Sorry, I don't think it's alright to let poor people starve to death. Sorry, I do think that we should take from the rich and give to the poor. If "American" business doesn't like it and they move overseas, tariff their imported goods. Simple. You know what's really become politically correct? Free trade and capitalist fundamentalism.