Tuesday, November 9, 2010

Untying the Knots

Why Should Rich People Have To Pay More Tax?

In light of the recent debate regarding the expiration of the Bush tax cuts, I thought I would air my thoughts on this subject. With due deference to Karl Marx, I seek not revolution, nor the eradication of class structure, as I feel that heavy handed social engineering comes loaded with it's own control issues– be it from the left or the right. Neither do I want my thesis to be doctrinaire, or to divide people by defining them as either "bourgeoisie" or "proletariat" – class divisions in America in 2010, I believe, are infinitely more complicated than they were in Royalist Europe in the mid nineteenth century. But also I want to write this in the language that we all speak, day to day, because despite our inherent individualities (which my gypsy nature is predisposed to advocate) the way we express our feelings, and the kind of world in which we want to live are probably not so dissimilar from our neighbors, rich or poor. I think simple fairness is what we are all looking for, nothing more complicated than that. It is how we define fairness that gets us into trouble. And so in the spirit of coming to an equitable definition of the word, I offer this:


So why should rich people have to pay more taxes?

On the face of it it doesn't seem such an unreasonable question, People work harder to make more money– why should they be punished for doing more, when less productive people receive all the benefits? If everybody paid the same percentage, then wouldn't rich people be paying more anyway? Seems fair... no?

Okay, let's leave aside the idea of tax loopholes for the wealthy, and assume that we could come up with a simple flat tax for everybody that had no loopholes. I know that I am fantasizing here, but for the purposes of this discussion it doesn't really matter how the very wealthy can manipulate the tax code. That topic can be saved for another day. The issue here is, simply, "should they keep the same percentage of the money that they have earned as those less wealthy?" Or, "should they have, in fact, earned so much in the first place?"

So now we've hit another obvious question: what do we consider wealthy? Obama has set the dividing point at families who make over $250,000 a year. To my mind, putting $251,000 a year into the same category as someone who earns $80 billion a year is a little arbitrary. It may be an attempt to diminish the egregious feeling most of us get when we think of somebody actually getting paid that much. But there really is a big difference. Look at it this way... 1 billion is 4 thousand times 250 thousand. The year that Bill Gates made $80 billion, he made 320 thousand times as much as a family that makes $250,000 per year. And that's what we define as a very wealthy family (remember, if you get minimum wage you earn about $15,000 a year– many families still earn less than $30,000 a year combined). To put it another way, they would have to keep working until the year 322010 in order to earn the same amount. I doubt if our species will be around until, then but hey!

Does this seem fair to you? Probably not... but wait, we don't want to be running a country based on what seems fair to some people. Is there some rational reason why this may or may not actually be fair? Let's take a closer look at this situation... but first lets see what we used to think was fair:

In 1965 the average CEO in the U.S. earned about 24 times as much as the average worker in his company. By 1978 that ratio had grown to about 35 times as much. By the 1990s that ratio had surged to 300 times as much, but then dipped in 2000 when the stock market took a fall. In 2005 it had resurged slightly to where the average CEO was now making ($10,982,000) 262 times that of the average worker ($41,000), but 821 times as much as a minimum wage earner (who at the time was only making $5.15 per hour).

Now this is of course only the average and doesn't fully describe the wealth of the very richest people who make thousands of times as much as that proverbial CEO. The aforementioned Mr. Gates, along with Warren Buffet, Paul Allen, and the entire Walton family whose combined earnings blow everyone else out of the water– so to speak, do make it hard for us mere mortals to understand how they could possibly have worked so hard to have made so much money... legally.

Americans tend to have an extremely strong work ethic; perhaps the legacy of the Puritans who founded this rock. In the early 20th Century, many Christian religious leaders condemned the stock market as being ungodly... a form of gambling. They believed it was not right to take money for which you had not worked. I believe that many of us still have that ethic, somewhere deep down. I think many of the "Tea Party" people feel this way, but have naively succumbed to the manipulations of the very same wealthy class whom they aspire to denounce. They are cajoled into condemning those in poverty, whom they see as being lazy and looking for a handout, and revering those who are successful and affluent, because they "worked hard to get where they are and deserve to keep their success." It is a convoluted nightmare of sloppy thinking, and yet it pervades a good portion of the country. But before we try to untie the knots of all these unreliable categorizations, let's first ask ourselves this question: is a strong work ethic necessarily a good thing?

Let's consider the alternative– even from a strictly capitalist perspective. People who earn money without producing anything, are not actually contributing anything to the system which supports them. They are in essence a parasite upon their community. Now I make no judgment about parasites, in nature, a parasite is not always a bad thing. Many parasitic creatures supply a service to the host. They clean or remove other, less useful parasites. In business, you may not create the product, but you sell it. That is a useful role. You may do the paperwork, you may hire the staff, you may fetch the coffee... all these roles are necessary, and require a certain amount of work. But what role does a stockholder play? And what work do they perform? Are they somebody who was just lucky enough to have the cash to invest in something that has a good payout? And what rights does that bring with it, as compared with someone who actually does the work.

If we had no system of stocks and bonds, we could still have a functioning society. Trade existed for millennia before the stock market came into existence. But if we only had a stock market, and no production, well...

So perhaps this is one way in which we can compare the respective value of elements of our economic system. Another way would be to examine what it is that Americans value on an emotional level. Kit Carson, Buffalo Bill, Davy Crocket, Thomas Edison, Henry Ford, Bill Gates... these were and are people– whatever you might think of their morality– who did a lot of stuff. That good old American get-up-and-go, and that good old American ingenuity. Yes it involved the genocide of the native peoples, the extinction of the bison, the wholesale destruction of nature, the pillaging of other countries, and the pollution of our own air and water... but we are mostly willing to overlook those little details because that kind of attitude accomplished the creation of this great big thing we love to call America.

Well then, which is more important– ingenuity... or get-up-and-go? Is it the idea, or the execution which has the most value. My father always used to say, "genius is ten percent inspiration, and ninety percent perspiration." So by his reckoning the act of building the damn thing was nine times as valuable as thinking up the stupid idea in the first place. "Any idiot," he would say, "can have an idea," (I'm sure we can all remember a few doozies that we've come up with) "...it's the guy who goes out and builds it that is doing something worthwhile."

I'm sure if you or I came up with that perfect mousetrap, but never did anything about it, and then later discovered that someone else had also thought of it... but built it– we would not begrudge them the profit. After all, we could only blame our own laziness for not having achieved anything. But what if we had an idea that we couldn't build, and we met someone who could? How would we share the profits from such a collaboration? According to my father's calculations, that would have to be split 90/10 in favor of the other guy. (I'm not sure my father himself would go along with such a deal– unless of course he was the other guy.) This doesn't take into account that some ideas may be very simple, and the construction process might be hellishly arduous, whereas other ideas may have taken years of hard work to come to, and the construction process is fairly easy. Let's just say, for the sake of argument, that both contributions are equally important, and we split the dividend 50/50.

Okay now we run into a problem with the construction. We need a part that the builder, José, does not have the strength or know-how to build... or the right equipment... or whatever. We need a third person, a specialist without whom we cannot continue. We get a guy whose name is Vishnu, but he wants a third of the profit. We tell Vishnu that he's out of his brain... we'll give him 20%. This leaves us 80% to split. José thinks he's getting half of that, but I tell him that it should come out of his share because he was supposed to be able to build the damn thing by himself. Anyway, after a bit of back and forth he agrees to 35% leaving me with lion share at 45% – which makes me feel good. It was my idea in the first place, and I should make the most. (Right now my father is rolling over in his grave.)

Now we all realize that we're none of us making a hell of a lot out of this if we just make one item. We need to produce a lot of these things in order to make any money. José tells me he's got a bunch of family members who are just sitting around the house who can help out. But I don't want to cut anybody else in on our profits– which is fair enough, he tells me, his family just wants to be payed for their time... decent pay... and, oh yes, benefits. Man... they need health care, and a living wage. Well, we don't have any money to pay them with, so we go to a rich dude, Wolfgang, and ask him for some investment. He thinks we got a good idea here, so he says he'll buy in and fund the factory if we sell him 60% of the company. We think Wolfgang is a nut-job so we go somewhere else. After endless meetings with other investors, we realize that Wolfgang was offering the best deal we could get, so we break down and sell it to him. We can't figure out why he deserves to have such a large share, but he's got the power, and we've got no choice.

Capitalist doctrine might tell us that if our product has enough value, then we will get the right price for it if we shop around. But this is not true when dealing with the very wealthy. They didn't get wealthy by paying a fair price for a fair deal. They got wealthy by paying less than it was worth, and selling it for more than it was worth.

The first thing Wolfgang does, is to tell José that we can't use his family. He just made a deal with a factory in the Philippines who can make the same item at half the cost. The workers in the Philippines don't have the same rights as they do over here. José is a bit peeved at first, until Wolfgang explains to him that his percentage is worth more when costs are lower. His obvious happiness regarding this issue creates problems at home.

So now we've gone from something that was a fairly negotiated settlement between comparative equals, to a situation where one person has a completely unbalanced amount of power, and a group of people (the workers in the Philippines) who have almost none. How then is there going to be any fair negotiation made now regarding how the profits are dispersed? Clearly, neither the person who had the idea, nor the people who built it are going to be the main beneficiaries of this deal. Ingenuity and work ethic are both losers here. The winner is just some guy who was lucky enough to have a bunch of moolah to invest. And his luck now also endows him with some pretty amazing rights, the least of which is that if his company does anything illegal, he can't be prosecuted.

The Libertarians will tell you that it doesn't matter. We live by the law of the jungle, and that the lion will rip off the biggest chunk of meat and then the hyenas will share whatever is left. But even a lion doesn't eat four thousand times as much meat as the smaller animals, and when a lion does get too greedy, twenty or thirty hyenas will take him down... and that will be the end of that lion. Now I'm not suggesting that we kill and eat very rich people, but the Libertarian idea that we all deserve whatever we can grab does seem rather easy to refute. By that definition if somebody beats you up and takes your wallet, they deserve the money they get. Essentially, they are saying that we should abandon all the laws that prevented the robber barons of ancient times (and also of American times) from continuing their greedy ways. I don't know about you, but I don't see that it's in my interest that Andrew Carnegie built himself a golden palace on a hill overlooking the Atlantic Ocean.

On the other hand, the Libertarians should acknowledge that if a group of us hyenas do want to take down the rich and mighty, well maybe that's also the law of the jungle at work. Surely we have the freedom (and in fact the duty) to gang up on those who are messing with our lifestyle, who are wielding inordinate amounts of power over us and others, and taking a bigger piece of the communal pie than we all think they deserve. Let's face it, you just can't come up with a rationale for any one person at a corporation making even a hundred times as much as the average worker... let alone a thousand! Do you really think that's fair? The way we little hyenas gang up in our culture is to put laws on the books that control that kind of wayward behavior.

There are many supposed Libertarian Tea Party members who have no objection to laws that take away freedom from other people. They don't mind telling people they can't marry, or serve in the military if they are gay, they don't mind laws telling people that they can't smoke marijuana, but they don't want to be told they can't carry their handguns when they are getting drunk in a bar. They don't mind huge government spending for the military when it deprives people in other countries of their lives, their freedoms and their civil rights, but they don't want to be deprived of their own freedom to discriminate against blacks or Mexicans. They don't mind their tax dollars supporting the industry of corrupt mercenary corporations, and corrupt construction corporations who steal from them, but they don't want that money being spent to feed homeless kids in the ghetto. They don't want to bail out banks or auto companies, but they don't want any regulations upon those companies either, and they can't stand the idea of taxing people who are insanely wealthy, because then they might be considered "socialist."

It's not socialism people. it's not communism either... it's just self interest.

None of those issues are right wing or left wing. Freedom should mean freedom for all. Fairness should mean fairness for all. Why are we regulating people who don't do us any harm as a society, and deregulating those that do? Everything is topsy turvy because America has a mental problem with a word. But the mental problems that America has are exactly what the unfairly wealthy will exploit in order to remain just that. And that will never change as long as money... huge unchecked amounts of it, are funneled to small groups of extremely powerful people.

Firstly, before anything else, we need campaign finance reform with teeth.

Again, it is not a socialist idea, it is in some ways quite capitalistic, and definitely very patriotic to regulate how money flows in order to benefit your country the most. So once again I ask:

Why Should Rich People Have To Pay More Tax?

And the answer is this:

Because they make too much stinking money in the first place.