Why Do Extremely Wealthy People Hate the Idea of Higher Marginal Tax Rates?

As I write this, Howard Schultz, billionaire and former CEO of Starbucks, is mounting an independent campaign for the presidency of the United States. And he seems to be running for that office because he’s horrified at the idea of paying a higher marginal tax rate on the part of the income that is over $10 million. And he isn’t alone in that horror. At the World Economic Forum in Davos, Switzerland, in January, billionaire Michael Dell was asked about that tax rate and quipped, “Name a country where that’s worked… ever” only to be corrected when MIT professor Erik Brynjolfasson replied, “The United States!”

According to Paul Krugman, taxing high incomes at extremely high rates—though below 100%—makes sense. On the one hand, at a certain point, there is no practical difference between the amount of money that an extremely wealthy person has and an infinite amount of money. Think about it this way: I have enough money that I would never notice if less than a dollar disappeared. I can afford far more of anything that costs a penny than I would want, which means that, for all practical purposes, I can afford an infinite number of things that cost a penny. For a billionaire, the same principle can be applied to items that cost hundreds of thousands, if not millions, or dollars.

On the other hand, the government still wants those people to bother earning that money so that it claim the revenue. In theory, a 100% tax would discourage people from working for that 10 million and first dollar. But since they would still work for 30% of the amount over $10,000,000, the government could tax the dollars over that amount at 70%, keep the incentive, and reap the taxes.

And that means, as Krugman puts it, that “the optimal tax rate on people with very high incomes is the rate that raises the maximum possible revenue.”

Now, Krugman knows far more about economics than I do, but I disagree with an important part of his assessment. For two reasons, once you’ve reached an annual income of $10,000,000—and probably far less—money isn’t really an incentive to work harder or longer. First, you don’t really control how much you make. Shultz’s income isn’t governed by how many hours he works or how hard he works during those hours. It’s governed by what decisions he makes regarding the investment of the money he already has (and he can even pay people to make those decisions for him). Second, he’s effectively living in a post-scarcity society, and just as spending a few thousand or million dollars doesn’t really mean anything to him, neither does making that money. I can’t prove it, but I really doubt that more meaningless money is really an incentive for the extremely wealthy. There has to be an entirely different incentive structure in place.

But that’s not the question I want to explore here. The question I want to explore is this: why are these billionaires so horrified by the idea of a higher marginal tax rate when that rate will mean effectively nothing in terms of their quality of life?

Over at Lawyers, Guns, and Money, Paul Campos proposes some ideas… which he then dismisses:

They want to make sure that their great-grandchildren have more money than they could possible squander? No, because great-grandchildren are usually an abstraction. People don’t really care about them.

They believe in some sort of supply-side economic model? Okay, but why do they believe in that economic model when it flies in the face of all available evidence?

They hate those kinds of taxes on principle? Okay, but what’s the actual principle for whose sake they object?

They’re greedy? Okay, but what does greed mean in a context where more money doesn’t mean anything?

Money is a way of ‘keeping score’? Okay, but that’s pathological in a context where money doesn’t mean anything.

You want to be able to buy something that really would put a dent in your wealth, like the presidency of the United States? Yes. That’s probably it.

I think that Campos is missing something here: there’s a cultural logic to wealthy people—especially extravagantly wealthy people—hating taxes. And it’s sort of related to ideas like greed and ‘keeping score’.

Now, I need to be careful here. What I’m about to say isn’t a bit of armchair psychology. I’m not about to suggest that people who are extremely wealthy believe certain things at either the conscious or subconscious level. Instead, what I’m about to suggest is a matter of cultural logic or social imagination. It’s wrapped up in the collection of all of the things—institutions, traditions, symbols, practices, and so on—that help us think of ourselves as an ‘us’… the shared, often unspoken, understandings of how things are and how things should be.

A big part of the social imaginaries of modern capitalism is the link between material wealth and personal value. To put that another way, the more wealth someone has, the more of a person they are. For example, we often talk about people being paid what their work is worth or, even, what they are worth.

Or, as another example, we act as though Mark Zuckerberg’s wealth qualifies him to talk about and influence education policy, healthcare reform, or whatever.

Or, as a final example, we imagine that a wealthy businessperson is qualified to be the president of the United States because he is a wealthy businessperson.

And I strongly suspect that link between material wealth and personal value is felt more strongly by people who are wealthy than by people who are not (partly because I suspect that we tend to find personal value in the things that we have a lot of, are good at, and so on).

If the social imaginaries that a person is embedded in sees a link between material wealth and personal value, then it makes sense that that person would see taxes as a bad thing. That person might even see taxation as a form of violence because, when the government demands money through taxation, it isn’t just taking money, it’s taking personhood. This is related to the notion of ‘keeping score’. The billionaire is a person partly because he’s a billionaire, and taking some of that money—making him a mere multi-millionaire—makes him worth less than his fellow billionaires, not just in terms of his material wealth, but in terms of his very personhood.

(This also helps explain why some people who are very wealthy don’t see a desperate need to fund social programs that help people living in poverty: those people are literally worth less than the extremely wealthy).

There’s a theological side to this: ‘The idea that material wealth is the same—or almost the same—as personhood’ is a pretty good description of greed, not just as a kind of personal vice, but as a sin. On the one hand, it’s a form of idolatry: material wealth is an object of worship. On the other hand, it’s a form of self-harm: instead of finding their value in their status as a bearer of the image of God, they find their value in their status as a bearer of material wealth. It is, perhaps, the most common sin: exchanging God for mammon.

So, what do we make of Schultz’s campaign? He’s afraid. He’s afraid that a popular uprising against the extravagantly wealthy will hurt him. Not literally, of course, but by taking away the source of his personhood. And while he’s right that such a popular upraising will begin a higher marginal tax rate, he’s wrong that it will hurt him in any way. In fact, giving up some of his wealth might even free him from the grip that wealth has on his soul. And it’s sad that he doesn’t see that. It’s almost enough to make me feel sorry for him.


Capital is the Ability to Buy Other People’s Productivity

“This is something more people need to understand: one of the powers of wealth is the ability to buy other people’s productivity.”

Roughly 1,000 news cycles ago—or at the beginning of January—Congresswoman Alexandria Ocasio-Cortez offhandedly proposed a 70% marginal tax rate on incomes over $10 million. The pro-wealth right wing responded in exactly the way that people expected. First, they deliberately misunderstood marginal tax rates. Second, they started complaining that a tax rate that high would be taking money away from productive people.

And that really misunderstands what productivity is, who the producers are, and how capitalism works. That’s what David Kalb was getting at in his original tweet… and what I was expanding on in mine.

You see, capitalism works like this. The capitalist has money and a means of production that he can’t operate all by himself. The worker needs money, so she sells her labor to the capitalist. She will take on some of the operation of the means of production in exchange for some of the capitalist’s money. Simple.

Let’s use Jeff Bezos as an example. He has a lot of money—he’s the richest person in the world, with an estimated net worth of more than $8 billion (with a b)—and he owns Amazon. But it would be ridiculous to think that he’s coding the Amazon website, stocking the products, taking orders, packaging things for deliver, and so on. In reality, he owns a ‘means of production’: a huge logistics system that is able to move products around the world. And he pays other people to do most of the work of… well, of making sure that huge logistics system works.

Now, let’s invent a fictional worker named Sally. Sally needs money in order to do things like buy food, pay rent, have care insurance, get access to health care, pay off her student loans, and do all of the other things that modern society demands. She does not have a huge logistics system or any other means of production. At least, she doesn’t have any means of production that would make a dent in all of her expenses. So she does what most of us do: she sells her labor to someone like Jeff Bezos. She helps operate his means of production in exchange for some of his money (or, maybe a little more accurately, some of the money that his means of production earns).

It’s a simple arrangement that most of us are used to in one way or another. Capitalism. Easy.

But it also leads to an important question: who here is the productive one? Is it the person who owns the means of production? Or is it the people who operate them? Or is it both? And, if it is both, how is the wealth that’s produced fairly divided between them?

Let’s say that Amazon employs about 500,000 people, including Jeff and Sally (it actually employs tens-of-thousands more). And let’s also say that Amazon generates $200 billion in revenue each year (it actually generates a bit less). Let’s also suppose that a lot of that—half of it—has to go to just keeping Amazon running. If we divided everything equally, that would be $100 billion shared equally among 500,000 people, or $200,000 per person each year. Simple.

Of course, it’s probably not the case that everyone is equally productive. Maybe one person is ten times more productive than someone else. And maybe it would be fair to pay that person ten times as much. So maybe some people only make $50,000 a year and some other people make $500,000 a year. Okay. Still simple.

But here’s the thing. The lowest paid worker at Amazon makes $15 an hour. Assuming a 40 hour workweek, that’s $29,120 a year. Bezos has a salary of about $81,000 a year; a pretty modest salary for the CEO of a major corporation. But he also owns about 80 million shares of Amazon stock, and he makes money every time the stock price increases. That means that he makes the salary of one of those $15-an-hour employees every 11.5 seconds.

I’m not going to do the math. But that means that if we really believe that wealth is a result of productivity, then we have to also believe that Bezos is tens of thousands times more productive than one of his new employees. And that’s just ridiculous. What makes him rich is that he is in the position to buy the productivity of his employees and, therefore, to enjoy the fruits of that productivity. As the owner of the means of production, he doesn’t have to justify his wealth. He doesn’t have to demonstrate that he produces enough to justify the money he receives; he just gets to claim that money because he owns the means of production.

Now, let’s make it worse. Let’s imagine another person who did not create and grow a company like Amazon. Let’s imagine someone who inherited a profitable company and an enormous fortune. Then, let’s imagine that person paid other people to manage that company and invest that fortune. And let’s imagine that those other people were successful and, thanks to their work, that capitalist—that person who has money and a means of production—makes the annual salary of his lowest-paid worker every 12 seconds or so. Is that capitalist productive? No. But he still benefits from the fact that he can pay other people for their productivity and claim the fruits of that productivity.

And that means that he still benefits from the argument that taxing his extravagant wealth is that same thing as taking the rewards of productivity from people who actually are productive. One of the things that capitalism tries to trick us into believing—and it has been remarkably successful at pulling it off—is that wealth is the same as virtue; that a person being rich is evidence enough that the person is smart and productive and whatever else we would like. And while that might be true in some cases, it is obviously not true in others. Wealth has nothing to do with virtue (and, in classical Christian thought, is utterly opposed to it).

One of the things that capitalism tries to trick us into believing is that wealth is the same as virtue Click To Tweet

As I just wrote, it is possible that some wealthy people are also particularly productive. It is possible that there is someone who is so productive that they should receive, say, a million dollars. It is possible.

But two things are definitely true. First, that many wealthy people cannot justify their wealth by pointing to their personal productivity. The only way that they can claim to justify their wealth is by pointing to the fact that they can buy other people’s productivity. And, in the end, that is justifying wealth by pointing to the fact that they were already wealthy. Second, that many people who are productive do not enjoy the fruits of that productivity. They are stuck in a system where they need to sell their productivity for less than it is worth… or, even if they can sell it for what it is worth, they can’t sell it for enough to enjoy a life anything like the capitalists who are in a position to buy it (and who are worried about the top marginal tax rates).

To put it simply, no one is productive enough to justify having the kind of wealth that someone who is worried about the marginal tax rates on incomes over $10 million has. It is possible that wealth is justified by something else, but it cannot be justified through an appeal to productivity. And that is why the argument that high marginal tax rates are not about taking money from people who are productive is garbage.

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