Taxes and The Rich
When someone who is at the poor end of the wealth spectrum (i.e. the vast majority of people in the world) make statements about income disparity, class inequality, or the basic unfairness of a nation’s infrastructure, even if those statements are objectively and factually true, they can easily be at least somewhat deflected by observing that those statements line up with the self-interest of the person making them. “They aren’t really arguing for fairness, they just want more for themselves” or “They’re just looking for a handout” are common rhetorical tools for doing this, but you’ve doubtless seen many other variants of this argument.
Well, that technique doesn’t work when the person making the statement is the third-richest man in the world:
Buffett blasts system that lets him pay less tax than secretary
Warren Buffett, the third-richest man in the world, has criticised the US tax system for allowing him to pay a lower rate than his secretary and his cleaner.Speaking at a $4,600-a-seat fundraiser in New York for Senator Hillary Clinton, Mr Buffett, who is worth an estimated $52 billion (£26 billion), said: “The 400 of us [here] pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies, for that matter. If you’re in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent.”
Mr Buffett said that he was taxed at 17.7 per cent on the $46 million he made last year, without trying to avoid paying higher taxes, while his secretary, who earned $60,000, was taxed at 30 per cent. Mr Buffett told his audience, which included John Mack, the chairman of Morgan Stanley, and Alan Patricof, the founder of the US branch of Apax Partners, that US government policy had accentuated a disparity of wealth that hurt the economy by stifling opportunity and motivation.
I made that one bit bold for emphasis. The statement is already high-lighting a reprehensible situation, but when you really recognize the implication of the bit in bold it jumps up to a whole new level of disgusting.
This comment also makes extreme sense to me:
Mr Buffett said that a Republican proposal to eliminate elements of inheritance tax, which raises about $30 billion a year from the assets of about 12,000 rich families, would broaden the disparity between rich and poor. He added that the Republicans would seek to recover lost revenue by increasing taxes for the less prosperous.
He said: “You could take that $30 billion and give $1,000 to 30 million poor families. Or should you favour the 12,000 estates and make 30 million families pay an extra $1,000?”
In the interest of exposing my biases: my wife tells me that my salary is in the top 1% of “wage-earners”, whatever that means–although I’m a lot closer in annual income to Buffet’s secretary than to Buffet! I pay somewhere between 40 and 50 percent of my salary in income tax, despite maximizing my RRSPs. Oh, and I am firmly in favour of graduated taxation where the people who can afford it shoulder more of the tax burden. You don’t hear that a lot from my socio-economic peers, but I’m not going to get into that, since that’s a whole other rant.
I’d love us to switch to an ethic of citizenship where people could be proud of the fact that they have more to contribute to the community, and would feel pride in their contributions. Wouldn’t that address both typically right-wing laziness boogey-man, and also introduce an element of jointly participating in something? Of course, we’d first have to make people feel that their governments and the products of them were, in fact, theirs. I’ve got a whole other rant bottled up about the systematic and, I think, intentionally alienation of the population from their government, but I’m going to keep that in the can for now.
Julian
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will shetterly
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July 3rd, 2007 at 5:24 pm
“they can easily be at least somewhat deflected by observing that those statements line up with the self-interest of the person making them”
Because self-interest is wrong, and the rich have no self-interest, as demonstrated by, uh, the impartial way that gather resources from everybody, and hoard them so that someday they’ll trickle down and everybody can benefit from them. Yeah. That’s it. It’s impartiality for the posthumous.
July 4th, 2007 at 1:48 am
Just to be clear Will, I’m not saying that the deflection tactic is a good or valid one, but rather one that it is one the Powers That Be always use, and which seems to have some rhetorical effect with the populace. It doesn’t matter if what someone says to the people is true, if someone else can discredit them in the eyes of the people with rhetorical tricks. Arguing with me about the invalidity of the logic, aside from being some “preaching to the choir” time wasting, is kind of missing the point–the point is that this kind of a trick seems to work generally, probably because it ties in with the western myth of the self-made man. In this particular case though, this common rhetorical trick doesn’t work, because Buffet’s statements are against his “rational self-interest”, in the twisted sense that economists use that term.
You also have to recognize that there is, underlying all questions of “fair” wealth allocation, a whole subtext of merit. You’re ignoring this question, at least as far as I can tell, in your redistribution of wealth posts, but you do need to address it, if only because it is key to the right-wing arguments.
As for me personally, what I see is a line that’s somewhere between “divide everything up equally regardless of work, accomplishment, or merit, however you determine those” and “pretend that the current system treats everyone the same way and thus all economic differences are based on personal merit, regardless of life circumstances”. My story would be “you can improve your lot in life through work or luck or nepotism or whatever, but as you ‘ascend’ the scale of socio-economic success you have to give more back to help others do the same”.
So it’s not equality of result, nor pretending that there is equality of opportunity, but rather binding responsibility to success however it is achieved. If I got ahead because I worked harder than others, then part of enjoying my success is contributing more back to the society that enabled me to have that success. If I got ahead because I was in the right place at the right time, then part of enjoying my success is contributing more back to the society that enabled me to have that success. If I got ahead because I inherited wealth from my parents, then part of enjoying my excellent good fortune is recognizing a responsibility to contributing more back to the society that enabled them to have that success. Etc.
July 4th, 2007 at 2:41 am
Apologies! That was meant as agreement, directed at the sort of person who says that sort of thing, not at you!
And, sigh, I suppose I’ll have to address some of those notions. But I’m not entirely sure it’s worthwhile. The people who believe the rich should keep all they can get are operating from faith, not reason.
July 5th, 2007 at 10:45 am
I agree absolutely with your comment “binding responsibility to success”. That sums things up nicely. However, I do not agree that taxation is the way to achieve this, though Buffetts comments are well said. In my opinion, directed donations and volunteering your time provides much more ‘bang for your buck’ than an increase in the amount of taxes paid. It also provides a tangibility that allows you to feel like you are a direct part of and contributing the improvement of the community, much more than paying a tax that is pooled and spent anonymously ever could.
If I could save a dollar of taxes for every dollar I donated to charity (or a worthwhile causes - although who decides what is worthwhile is an issue), I would give a lot more than I currently do. In the same vein, if I were credited tax dollars for every hour of time I donated to community groups or activities, I would give a lot more time, and probably work less.
BTW, thinking along these lines reminded me immediately of the In Praise of Idleness essay you wrote about a while ago. I thought you were going to enlighten us with more Bertie?
July 5th, 2007 at 11:40 am
Right. I’m going to get on that Real Soon Now™.
The charity thing works if you assume two things: that people won’t just use it as a tax dodge, and much more importantly that the priorities of the people who can afford to contribute line up with the priorities of the society.
I don’t think either of those assumptions would hold up. On the first one, we already see all kinds of “charities” being used as tax dodges, and the tax relief ratio today is a lot lower than 1:1.
The second one is the one where things really break down though: essentially leaving the choice of where to put the money up to the people who contribute it means that a small section of the population (the successful) control where the vast majority of the “social” money is spent. I would think it obvious that money that is meant to be contributed to the overall good of the society should be allocated by consensus of everyone in the society, or whatever the closest practical means is. (Probably plurality of the population via elected representatives, but whatever.)
July 5th, 2007 at 1:00 pm
Using charities as tax dodges - since this potentially (and I stress the word potentially) is no different than the status-quo, I see no reason not to give it a try. Rather than a tax dodge for the rich, it would at least be a tax dodge for everyone who has to pay taxes.
The choice where to put money being left with those who have it - Right now, I think the decision on where to put money is already being left with those who have it. Basically, you need to have money to run for office (at least an office that allows sufficient power to affect tax spending), and you need to hold that office in order to direct tax funds.
By allowing people to direct their own money, I would think you actually have a lot more people involved, from various levels of society, than you do with the current tax system. The element of ownership and participation is critical in improving society as a whole.
I have one more comment as well. In my mind, time is worth as much or more than money. In that regard, everyone is on pretty much an equal footing - we all have the same amount of time on our hands and must decide every day where best to spend it.
July 5th, 2007 at 1:12 pm
Biff, a couple of quick points:
Every study I’ve seen says government aid is more efficient (and far less whimsically administered) than private aid.
And we don’t all have the same amount of time. Some people are working 60 to 80 hours a week at minimum wage to support their families. Some people live off their wealth.
July 5th, 2007 at 2:14 pm
Without focusing too much on the details, I was just saying I think there are better methods than throwing more moeny at a problem, (ie. making me pay more tax). While it may alleviate social inequalities short term, it does not address what I think are more important systemic problems, like lack of participation and lack of a sense of ownership or vested interest in making society better.
July 5th, 2007 at 2:21 pm
I agree completely that just “more money” is not the answer. Like I said in the initial post, positioning a graduated tax scheme (like the one we have now, but ideally with a lot less loopholes, so that everyone who makes more than me pays at least the same percentage as I do!) as a question of responsibility to society requires that people recognize that the government is an agent of society, and not some separate entity unto itself.
If a government acts as the agent of the people, and is kept accountable to the people, then it is the most efficient way to gather common resources and distribute them to common goals.
I do think Will has a good point about time, though. I think the amount of “disposable” time a person has is a function of many things, but income/wealth is certainly one. An hour of my time is easier to come by than an hour that comes from a single parent supporting two kids with a McJob, you know?
Also, I’m not sure it’s as simple as saying an hour is an hour. If I take an hour off work to build a house for Habitat, then one hour of (pretty poor) labour gets done. If I work that hour and donate my income to the project, they can pay several labourers for that hour, with a net gain of several hours labour on the house. If Buffett decides to donate an hour’s income, then a whole block of houses gets built, which is clearly a better end result than taking an hour of his labour.
July 5th, 2007 at 2:37 pm
Chris, is the system that lets Buffett decide whether a block of houses should be built a good one?
Biff, there’s a simple solution to the “sense of ownership or vested interest” problem: Give poor people things, like homes, to own. I rarely hear of rich people saying, “Oh, I can’t inherit wealth! I must earn it in order to appreciate it!”
July 5th, 2007 at 6:26 pm
Will: don’t be conflating the points. My point here is not about whether or not it should be Buffett’s choice, but rather that under any system even remotely resembling ours, you can’t just say “an hour is an hour”. (Indeed, the argument I’m making for a graduated taxation scheme that is ruthlessly enforced would suggest that he doesn’t get the choice–the fact that he makes $$$$/hour means that his contribution is necessarily more that someone who makes tuppence/hour.)
You still haven’t addressed the notion of merit, or motivation, in your “give things to the poor” plan, though. Specifically, shouldn’t merit be rewarded in some way? Where is the motivation to work harder (or at all) if you end up in the same place whether you do or not, especially if you work hard and you neighbour who doesn’t work at all gets just as much reward from your work?
July 5th, 2007 at 7:28 pm
Chris, part of the reason I like progressive taxation (if I have to live in a capitalist system) is that it recognizes that an hour for a rich man is very different than one for a poor one. Huh. I wonder what would happen if you changed the base of taxation to “give 100 hours to your country.” For the person on minimum wage, $500 would be do-able, and you’d get pretty good money from Bill Gates.
Not that I have a clue what Gates pays. The “100 hours” is totally arbitrary; maybe it should be 200, which is still less than a month, or two months. Alas, don’t have time to play with numbers just now.
The incentives I’ve always valued are praise and the satisfaction of doing something I thought was important. I think that’s all a society needs. What people need to be comfortable is surprisingly small, yet most of the people who have much more than that seem to be happy to keep working. I don’t see why that would change if more people had a fairer share of their society’s wealth.
July 9th, 2007 at 7:46 pm
Late to the game, I know, but: There’s an emotional component that I think hasn’t been mentioned yet. This article points out (admittedly on another topic) that people have trouble accepting things they know to be logical or rules-appropriate if those things don’t intuitively fit with what you might call their “naive economics” - whatever their intuition or their “common sense” tells them is plausible about the world. And the idea that there has to be an incentive for working hard (a “fair reward” - never mind that the whole idea of “fair” is fairly laughable in any objective or external or community sense), and that inheritance taxes or progressive tax schemes subvert or undermine that fair reward, is such an idea to Americans.
It’s actually not, for three reasons:
1. Rich people have more to lose. Since they derive a greater benefit from the proper functioning of societal institutions both punitive (police force) and preventive (social programs), they should be paying more in.
2. Rich people need more support. I’m not just talking about getting addicted to a higher standard of living here; I’m more particularly talking about the fact that maintaining their wealth requires a small army of workers in a variety of industries who have to be fed and especially educated. Where would Buffett be without Coca-Cola and the thousands of workers they employ?
3. Aw, hell, I forgot the third one already.
Now, the incentive thing is still a good point - look at the slow growth of the GDP and the relative lack of new millionaires under the Ford administration, when the top marginal tax rate in the US was 91%. And Chris, your point about the relative efficiency of a Buffett hour is an elegant one. Man, I had a point here somewhere….let me try and find it…Oh, right. To Biff’s point: You have to design a scheme that handles both incentive to produce more and responsibility to take a personal interest in redistributing it. As well as to Chris’ point: You have to find a way to do it efficiently, in a way that doesn’t have unintended secondary effects such as de-motivating your neighbor out of resentment. And to Will’s point: Perhaps the most productive way to do this is to spin your preferred scheme in such a way that people get emotional satisfaction out of it. Which is where I think the idea of a “naive economics” really comes in handy.
Just say for one second that we could find a highly efficient and productive way of protecting, redistributing and generating wealth societally. We still have to get people to buy it.
July 9th, 2007 at 10:30 pm
Kira, we’re mostly in agreement as usual.
I had been avoiding inheritance taxes, but since you’ve brought them up, let me say that I am heartily in favour of them for three reasons:
1) The slow down the concentration of capital
2) The encourage charitable giving and the creation of charitable foundations
3) They encourage each generation to actually produce value, rather than just accumulating wealth.
Also, they tie in to my notion that a fair society should do something the level the playing field without enforcing a common result. Obviously there’s no perfect solution to that problem but a society with inheritance taxes, and steep ones, is better than one without.
As to the issue of “naive economics”, I’m aware of it, but I’m not sure what can do about it. On the one hand the obvious solution would be a combination of properly valuing things that are unaccounted for today(*) in economic decisions, and educating the public to align “naive economics” more closely with our best representation of reality. As with any solution that involves educating the masses that’s a long game. In the shorter term we could “pander with the best intentions”, I guess, but that always feels wrong to me somehow.
(*) i.e. homo economicus behaves much differently if costs are defined to be a closer approximation of the “real” cost–if loggers had to pay for the loss of {oxygen generated, carbon dioxide absorbed, habitat provided, shade provided, biodiversity, erosion resistance of soil, etc.} then the economics of construction (and paper, and lots of other things) would change pretty dramatically.
July 10th, 2007 at 7:23 pm
Well, on the one hand it is indeed an issue of “pandering with the best intentions”. But it’s also an issue of selection - if it can’t be sold to the american public, it’s not a viable solution.
I think that’s part of the reason the US tax code has gotten so fiendishly complicated. We keep using it as a direct stimulus to provoke certain behaviors and restrain others, and then we have to correct for unintentional secondary effects that make no emotional sense, such as the “marriage tax” that existed for a while, where couples who were married would end up paying more in taxes than they would if they were separate.