Posted by Jerrod @ 9:13 pm on November 30th 2010

The best argument for taxing the rich I’ve heard yet (really)

Listening to the most recent Zakaria GPS, I was introduced to David Stockman, former congressman from Michigan and President Reagan budget director. Zakaria is pretty good but I was still expecting to hear more of the same tired old dogma about how bad it would be to tax the upper echelon income brackets. Instead, he pointed out that the net worth of the top 5% has quintupled (that’s an increase of 5 times or 500%) since the Reagan era (from 8 to 40 trillion) but of course our economy hasn’t grown that much. That’s an indicator of how our income structures in the US have gotten out of whack. These income levels were not a product of actual productivity of economic contributions by the rich but benefits or side effects of the bubble economies (dotcom, housing).

Stockman advocates taxing the rich not from a Robin Hood-esque steal from the rich to feed the poor redistribution position but from a rebalancing (he uses the word “reset” which I like) of what we’ve always considered appropriate income distribution. It’s especially important to do it now when we need money so desperately. Since the rich didn’t earn that money, they should be tapped for it. This isn’t a punitive argument either (they didn’t earn it so the government should take). Because they didn’t contribute anything to garner those increases, we’re not losing anything by taxing them. If anything, taking away the easy, bubble and debt fueled expansion of income is going to spur innovation. Why do anything when you can get rich doing nothing? Take that (and the fruits of it) away, and the rich will, you know, do something. And that something = economic growth.

6 Comments »

  1. So, naturally, you are NOT suggesting a bracket-based raise in income tax rates, which would punish the productive along with the unproductive. You are, instead, advocating a specific, targeted tax related to earnings from specific sources (please identify them).

    And you would apply this tax to earners regardless of their income status–the poor did no more to “earn” this money than the rich did, so taxing it away from them is no less just.

    Correct?

    Comment by Rojas — 11/30/2010 @ 11:23 pm

  2. Jerrod- wow, what an amazing generalization. “Since the rich didn’t earn that money” followed by “Because they didn’t contribute anything to garner those increases.” Really, not a one huh? “Why do anything when you can get rich doing nothing?” Just all kinda collectively sat there when they turned up their ‘Rich Card’ in the deck of life and said, “All right gang- it’s cruise control for us. No need to be productive, we drew the rich card.”

    Also interesting that the act of redistribution is more palatable because of the particular wording used. “Stockman advocates taxing the rich not from a Robin Hood-esque steal from the rich to feed the poor redistribution position but from a rebalancing (he uses the word “reset” which I like) of what we’ve always considered appropriate income distribution.” By this process, we could feel better about such things as famine by calling it ‘Systemic Caloric Scarcity.’ Question- who is the “we” in “we’ve always considered appropriate”? And surely there is nothing to incentivise a group of folks more to, “you know, do something” than to “reset” their wealth and ask for them to do it again so that the process may sustain itself. In this world I would assume wait to receive my redistribution/reset check.

    Comment by Jason — 12/1/2010 @ 12:56 am

  3. I have to admit, the post smacked me in the face the same way it did Rojas and Jason. There’s a pretty startling class warfare premise buried in a very shallow grave under all that.

    Comment by Brad — 12/1/2010 @ 10:23 am

  4. Well, actually, I kind of take his point. And frankly I’m MORE THAN READY to declare war on the unproductive rich–recipients of inherited wealth, golden-parachute recipients, people whose chief productive skill is networking, CEOs whose salaries are unrelated to company performance, and so forth. I’m not at all kidding; I fully understand and sympathize with the left’s complaints about a specific subsection of wealthy Americans.

    So I dig what Stockman is saying here. My only point is that it’s not an argument for taxing the rich as a group. It’s an argument that specific behaviors and/or enterprises should be taxed.

    Comment by Rojas — 12/1/2010 @ 12:09 pm

  5. Rojas, with respect, what is it exactly that you think your selected suspects of “unproductive” largess do with their money that makes them subject to (or as an ode to Jarrod’s love of softer gentler phrasing- ‘lucky recipients of’) special taxation? I won’t even say punative taxation because that is obviously in the eyes of the beholder. I understand- somebody’s punative 50-60-70% inheritance tax leavy is another’s generous contribution to the “reset” fund.

    Hmmmm, CEOs, recipients of inherited wealth or those clever networkers (Forgive me but I am struggling to clearly define this particular type of societal villain) for example. Do you imagine them all to be very Dennis Kozlowski like- multimillion dollar Grecian themed birthday soirees and $10,000 shower curtains? Paris Hilton types? (She may be the worst of the bunch you see, Rojas- an inheritor who somehow morphed into clever networker and scored a career built on being horrible for public spectacle and consumption.) Or a more benevolent Richie Rich kinda of thing where they simply store their money (all in neat stacks of gold bars and coins of course) in large rooms within palatial estates never letting a dollar or doubloon go? Should we “reset” (it is a catchy phrase- I am feeling better about April 15th already) all of their plunder to incentivise them to, as Jarrod so deftly put, “you know, do something?”

    Comment by Jason — 12/2/2010 @ 1:12 am

  6. What I liked about Stockman’s reasoning was that he’s actually offering a rationale for why higher taxes on the upper brackets is both needed and reasonable. Many people want to tax the rich just because that’s where the money is and “they can afford it”. Stockman points out that the current income disparity proves that the richest 5% didn’t come through their riches via economic contribution (they would have maintained an similar ratio if this was the case) but that they were beneficiaries of the last two decades of bubble economics and huge transfers of wealth from the bottom 95% to the top 5%.

    You could conclude that they thus don’t deserve that money and should just have to give it back but I think the more important interpretation is that because of the nature of their gains in wealth, the economy isn’t going to suffer the negative consequences of higher taxation on this bracket since it wasn’t very economically productive anyway. Almost all of our entire productivity over the last 20 years has been bubble inflated and has shifted huge masses of wealth to a very small portion of society. The argument that this segment shouldn’t be tapped to pay for the debts that accrued as part and parcel of the process that transferred this wealth to them isn’t class warfare, its simple common sense.

    We have to raise taxes, there’s no reasonable debate on this issue. The amount and who gets taxed is the question. Personally I think that everyone needs to have their taxes raised to pay for it, but based on this rationale, I support higher taxes on the upper brackets.

    Rojas, it isn’t feasible to target specific business, I don’t think. The effects of the bubble economy on investments and overall growth during that period affected everyone.

    Comment by Jerrod — 12/2/2010 @ 4:09 am

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