By J. Bradford DeLong The opinions expressed are his own.
Via a circuitous Internet chain "“ Paul Krugman of Princeton University quoting Mark Thoma of the University of Oregon reading the Journal of Economic Perspectives "“ I got a copy of an article written by Emmanuel Saez, whose office is 50 feet from mine, on the same corridor, and the Nobel laureate economist Peter Diamond. Saez and Diamond argue that the right marginal tax rate for North Atlantic societies to impose on their richest citizens is 70%.
It is an arresting assertion, given the tax-cut mania that has prevailed in these societies for the past 30 years, but Diamond and Saez's logic is clear. The superrich command and control so many resources that they are effectively satiated: increasing or decreasing how much wealth they have has no effect on their happiness. So, no matter how large a weight we place on their happiness relative to the happiness of others "“ whether we regard them as praiseworthy captains of industry who merit their high positions, or as parasitic thieves "“ we simply cannot do anything to affect it by raising or lowering their tax rates.
The unavoidable implication of this argument is that when we calculate what the tax rate for the superrich will be, we should not consider the effect of changing their tax rate on their happiness, for we know that it is zero. Rather, the key question must be the effect of changing their tax rate on the well-being of the rest of us.
From this simple chain of logic follows the conclusion that we have a moral obligation to tax our superrich at the peak of the Laffer Curve: to tax them so heavily that we raise the most possible money from them "“ to the point beyond which their diversion of energy and enterprise into tax avoidance and sheltering would mean that any extra taxes would not raise but reduce revenue.
The utilitarian economic logic is clear. Yet more than half of us are likely to reject the conclusion reached by Diamond and Saez. We feel that there is something wrong with taxing our superrich until the pips squeak so much that further taxation reduces the number of pips. And we feel this for two reasons, both of them set out more than two centuries ago by Adam Smith "“ not in his most famous work, The Wealth of Nations, but in his far less discussed book The Theory of Moral Sentiments.
The first reason applies to the idle rich. According to Smith:
A stranger to human nature, who saw the indifference of men about the misery of their inferiors, and the regret and indignation which they feel for the misfortunes and sufferings of those above them, would be apt to imagine, that pain must be more agonizing, and the convulsions of death more terrible to persons of higher rank, than to those of meaner stations …
We feel this, Smith believes, because we naturally sympathize with others (if he were writing today, he would surely invoke "mirror neurons"). And the more pleasant our thoughts about individuals or groups are, the more we tend to sympathize with them. The fact that the lifestyles of the rich and famous "seem almost the abstract idea of a perfect and happy state" leads us to "pity"¦that anything should spoil and corrupt so agreeable a situation! We could even wish them immortal … "
The second reason applies to the hard-working rich, the type of person who:
devotes himself forever to the pursuit of wealth and greatness…With the most unrelenting industry he labors night and day….serves those whom he hates, and is obsequious to those whom he despises….[I]n the last dregs of life, his body wasted with toil and diseases, his mind galled and ruffled by the memory of a thousand injuries and disappointments….he begins at last to find that wealth and greatness are mere trinkets of frivolous utility….Power and riches….keep off the summer shower, not the winter storm, but leave him always as much, and sometimes more exposed than before, to anxiety, to fear, and to sorrow; to diseases, to danger, and to death…
In short, on the one hand, we don't wish to disrupt the perfect felicity of the lifestyles of the rich and famous; on the other hand, we don't wish to add to the burdens of those who have spent their most precious possession "“ their time and energy "“ pursuing baubles. These two arguments are not consistent, but that does not matter. They both have a purchase on our thinking.
Unlike today's public-finance economists, Smith understood that we are not rational utilitarian calculators. Indeed, that is why we have collectively done a very bad job so far in dealing with the enormous rise in inequality between the industrial middle class and the plutocratic superrich that we have witnessed in the last generation.
WTF??
The politics of envy are alive and well and living with the American left. Sure you can tax them and then they would simply move overseas as Jim Rogers has done.
But here is another statistic to show how pointless this line of reasoning is. Gates and Buffet’s total wealth would fund the Federal government for about a month.
If you confiscated all the earnings (100% tax) of the top 400 wealthiest listed on Forbes it would fund the Federal government for about eleven and a half months.
The demands of the Feds are so huge that no amount of taxing of the wealthy will make even a tiny dent in the problem.
But, of course, the politics of envy has always been short on rational thought and long on emotion.
Your thinking is refreshing and honest. Just the ideas you are suggesting we only consider are running straight into a tsunami of propaganda that is teaching us to think in these simple term: Those who are wealthy earned it and every effort within the power of our government should be made to help them further increase their wealth. Everyone else, on the other hand, are comparatively lazy and are obviously doing something wrong. Those people, roughly 99% of us, do not deserve any help from the government because, unlike the top 1%, the 99% haven’t earned our government’s help and should actually be looked down upon. It’s amazing and bazaar, not to mention deleterious to the greater good of our nation.
For starters, I resent this push to suffuse our culture with the belief that wealth is the preeminent standard on which to judge one another. This is particularly ironic in that it’s a belief being perpetuated by the Republican Party, the Party that likes to consider itself representative of Christian family values. And nothing could be further from the truth. This is exactly the kind of thinking that Jesus was trying to overturn.
I’m afraid the GOP is only going to manage to divide this country, and so far they’ve been doing an excellent job. And when anyone of the 99% question what is being instilled in us, they are immediately charged with aggravating “class warfare”. Ironic, isn’t it?
Doubling the current effective rate from 17% to 34% would seem like a sufficient increase, particularly if the 47% who supposedly pay no income tax paid 10-15%.
Hear, hear!!!
For the super rich, any thing above their mansion, expensive car, a small jet or two, extra rich-with-good- calories food, and their dogs and cats, plus a fat monthly check from welfare (all of this just to keep them happy and hopefully productive), should be totally nationalized. How about that?
Well said !
eleno: I’m curious about something. There are many possible reasons why someone would support raising taxes on the wealthy. Admittedly, class envy is one of them. I’m sure there are people who are lazy, envy the rich for having what they, themselves, can’t afford, so they want to see taxes go up on the wealthy.
But there are other possible reasons, like believing that current tax policy is unfair because a small segment of the population is increasing their wealth significantly when the vast majority of people cannot afford to pay more in taxes and therefore, since running our country requires money, the wealthy should pay a greater portion of their earnings in taxes.
There are some, millions actually, who live on fixed incomes who see the cost of living increasing significantly year after year without any relief in sight. In fact, most of the talk coming from our government involves cutting back on all programs that those of lesser means depend upon. Certainly you wouldn’t want to mistake need for envy. I just can’t imagine many of America’s elderly are sitting around pining away longing for the lifestyles of the rich and famous. More likely they are just focused on survival and would be more than grateful if they could just know that their basic necessities would continue to be met.
And there are many millionaires who agree that they should be paying more in taxes. Warren Buffet just happens to be the best known. In fact, the WSJ recently reported that 68% of millionaires agree that their taxes should go up: (http://blogs.wsj.com/wealth/2011/10/27/ most-millionaires-support-warren-buffett s-tax-on-the-rich/) Obviously this position has nothing to do with class envy, because these are people who already have everything money can buy.
So here’s my question: Judging from your post, why do you assume that those who believe that taxes on the rich should rise do so out of envy? Where is your evidence? Are you possibly confusing opinion with evidence? Are you just assuming that if someone thinks taxes should rise on the rich that it can only be because they are envious of the rich? Since a majority of Americans believe that the rich should pay more in taxes, do you really have such a low opinion of Americans?
Supposing a typical Middle Class family is pulling down $48,000 a year. They are making the typical monthly payments, but are finding it more and more difficult to keep up because their income isn’t increasing but every year the cost of living is. They see cuts being made to public education continuously. Perhaps their parents are on Medicare and living on Social Security and they worry that cuts will have to be made to these programs. They see the US cease to tackle the kinds of projects that once made our country great, like our space program, the Hoover Dam, Eisenhower’s Interstate Highway System, or the Panama Canal. Heck, we don’t adequately maintain what we’ve got now, like our electrical grid and much of our infrastructure.
Why isn’t it possible that this family believes that the US would be better off if the wealthy, whose wealth continues to aggregate with each passing year and, frankly, wouldn’t miss the difference paid in increased taxes anyway, were to pay more in taxes, particularly since a majority of the wealthy agree with this family? Why make the less likely assumption that it’s all about class envy, when really all they want is what’s best for their family and their country? Or to look at it another way, if a majority of Middle Class Americans believe that the rich should pay more in taxes and a majority of the rich believe they should pay more in taxes, why shouldn’t the government raise taxes on the rich? Isn’t that a no-brainer?
And BTW, Jim Rogers, former partner of George Soros, moved to Singapore because he believe it’s easier to make money in Asia and that the US is in economic decline, not because the US taxes too much. He only cares about money, and obviously lacks any patriotism. Of course, that’s his prerogative. Income taxes have been as high as 92% on the affluent here in the US and we did just fine. There was no mass exodus of rich people leaving the country.
Bottom line is, in order for our country to thrive we have to raise taxes. If you feel that having a small number of people amassing tremendous amounts of wealth is a higher priority than seeing our country thrive as well as maintain the strongest military force in the world, then you’ll want to stick with the line that the rich should pay less in taxes. That’s certainly your right. But I think it’s self-belittling to assume that those of us who believe otherwise do so purely out of class envy. Just something to think about, but you’d actually have to think about it to reach any greater understanding.
This is silly… Just bring the tax rates on the super rich up to where it was in the 90′s…Get rid of the big corporate subsidies… Concentrate any new tax breaks on emerging small businesses and…… instead of taxing companies on how many employees that have…How about taxing them what and how much they process… Tax Evey bank – to – bank transaction that has nothing to do with customers… even the smallest percentage of that could easily bring our country out of debt.
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