“TAX THE RICH; FEED THE POOR…’TIL THERE ARE NO RICH NO MORE”

9/29/09

Much was made earlier this week of a poll that purported to show that 51% of Americans think that the “very rich” ought to be taxed at the rate of 50%.

First, a clarification of terminology. These polls are often inane, as is much discussion of “the rich,” a concept that seemingly confuses most people. Being “rich” refers to wealth; it is a balance sheet concept. One who has a high net worth is rich. If we are talking about taxing the “rich,” we ought to be talking about wealth taxes or personal property taxes, not income taxes. Income taxes hit people with high incomes (an income statement concept), who are not necessarily rich; i.e., they have not accumulated much wealth either because they have not been earning high incomes for a long time and/or they have, rather than accumulate wealth, elected to squander their incomes on the typical fluff and baubles that preoccupies so many high income, and faux high income, Americans. Note that, as my Dad used to say, people with money didn’t get that way by spending it. However, since most people are incapable of making the distinction between the “rich” and those with high incomes, and because of the wording of the polls, we have to assume that the pollsters and respondents are using the term “rich” to mean “high income earners.” Perhaps this level of financial illiteracy is fortunate; if people knew the difference between “rich” and “high income,” they would be pushing for wealth taxes, which would be the ultimate economic, financial, and political lunacy.

Taxing people at a 50% marginal rate is both misguided and unconscionable. It is misguided because it is horrible fiscal policy; at rates of 50% and higher, many high income people, and probably the most productive, would decide that it makes more sense to turn off the alarm clock and go back to sleep rather than get out of bed and face the world. A 50% rate is unconscionable because there is no justification for the government to seize 50% of anyone’s income; in the 19th century, the serfs in Russia rebelled at tax rates much lower than 50%. The government is not entitled to 50% of anyone’s income, especially when that rate was set, under our “democratic” system, by people other than those earning income taxed at 50%. One, of course, could argue by logical extension that no tax on income is justifiable, and that might be a worthy, but ultimately pointless, argument that we can save for another day. But half one’s income seized through the coercive force of government? Even the most ardent populist has to have misgivings, even if secret misgivings, about such an idea.

That having been said, can one blame the average person for feeling that such an onerous rate of taxation is justified in the wake of the behavior of our high income earners? Has there ever been time when high earners made such an extravagant effort at audaciously, and gauchely, displaying their “wealth” (or, in reality, access to liability creation, as I have said ad nauseam in the past)? The McMansions, the summer homes, the trips, the cars, the electronics, the clothes, the food, the restaurant meals in which the size of the portions and the price of the entrees seems to be inversely related, the hookers, the gambling, the expensive booze that differs only in labeling from the cheap hooch that did the job just as effectively on the residents of the skid rows that used to occupy the space now filled with the manses of the nouveau in debt, the cocaine, and all the tiresome detritus of the modern “rich” seem to be designed simply to tell other people: “I have money and you don’t. Chump.” Or, perhaps even more true, “I have more money than you! Don’t I? Don’t I? Please tell me I do or I will just fall apart. Wah! Wah! Wah!”
Yes, we are all familiar with the gilded age, but were even the exemplars of that era as audacious as these simpering wunderkinds? Certainly, the denizens of that age were eager to display their wealth, but there were fewer of them, they tended to display their wealth only to their approximate peers (out of a display of common sense completely foreign to today’s aspiring Gatsbys), and, unlike today’s “rich,” the Vanderbilts, the Rockefellers, the Carnegies, etc., actually contributed something to our economic development; they made their money laying the foundation of our prosperity rather than ripping out that foundation to squander the proceeds on their ephemeral pleasures.

Further, this display of wealth not only incites the typical person, who gets the feeling, in most cases rightfully so in modern American, that s/he is getting screwed by the “rich,” but tends to raise doubts about capitalism, but not in the way one mighty think. In a truly free market, capitalistic society, one gets rich by working hard and being smart. But if one is to judge today’s high income earner by the way he handles his wealth, we can only conclude that he is an idiot. Who needs any of this figurative excreta on which he not only squanders his income but also drives himself into debt? Why, for example, does a guy like Jim Press, former muckety-muck at Toyota (and the first American to serve on Toyota’s board) at which he made a seven figure income for years, and then a poohbah at Cerberus and Chrysler, at which he would have made an eight or nine figure income had his judgment regarding his own industry not been so poor, find himself in actual or figurative bankruptcy? Because he couldn’t get by on a seven figure income due to his senseless squandering of his income. Why do people feel consumed to buy the junk they buy? How smart can they be? And if they work so hard, how can they possibly have time to play with the toys they buy? The way the typical “rich” person, or at least the “rich” person who is most desperate to show everyone he is “rich,” handles himself leads a sane and sober person to wonder whether it is smarts and hard work, or merely luck, that makes one rich. It seems to all the world that the Millionaire Next Door years ago moved to a McMansion, bought a fleet of Ferraris, and is now broke. Too bad for those waling children. But truly bad for those sane and sober rich, those who have accumulated wealth the old fashioned way: hard work, intelligence, dedication, focus, and a willingness to adapt and, yes, to serve their customer base and community. These people, the true heroes of our economy, will be painted with the same brush, and be subjected to the same punitive levels of taxation, as those who made their money though lucky breaks, even luckier trades, the utter foolishness of the American people, or even more nefarious means.

So a tax rate of 50% on anyone is moronic; however, those who have behaved like utter fools in the wake of their newfound (or, in some cases, longstanding) riches have brought such vitriol disguised as policy upon themselves. In fact, one wonders why the percentage of positive responses was not far higher than 51%.