Truth on the Market | Todd Henderson | We are the Super RichI have some mixed feeling about this piece, but it's definitely worth reading.
The rhetoric in Washington about taxes is about millionaires and the super rich, but the relevant dividing line between millionaires and the middle class is pegged at family income of $250,000. (I’m not a math professor, but last time I checked $250,000 is less than $1 million.) That makes me super rich and subject to a big tax hike if the president has his way.
I’m the president’s neighbor in Chicago, but we’ve never met. I wish we could, because I would introduce him to my family and our lifestyle, one he believes is capable of financing the vast expansion of government he is planning. A quick look at our family budget, which I will happily share with the White House, will show him that like many Americans, we are just getting by despite seeming to be rich. We aren’t.
0. I would not characterize our situation as Obama "planning" an expansion of government. Saying it is being planned implies that it will be happening in the future, when it is actually in full swing now, and indeed has been since Bush's first term. See Nick Gillespie: Why is everyone picking on the Bush "tax cuts" rather than the Bush "spending increases"?
1. At it's heart, Henderson is getting at the distinction between high-wealth and high-income, and I like that. We think of "the rich" as people who have a lot of money, but our tax code is based on people who are making a lot of money. We don't tax richness, we tax the first derivative of richness. The Hendersons make about a third of a million dollars, pre-tax, each year and owe about a third of a million in student debt alone. Between that and a mortgage they probably have a negative net worth. Are they "rich?" Yes, in a way. But also no, in a way. Our arguments about taxes are always going to be a mess as long as the answer to that question is both yes and no. This is why I wish we would not calculate taxes in such a myopic, one-year-at-a-time way.
2. Henderson talks about how after all their family expenses they're left with a few hundred dollars of disposable income each month. I understand that these expenses are largely fixed and not easy to cut, but they're also entirely voluntary. I'm not not going to let the financial commitments he made to private school tuition or mortgaging a property in an expensive neighborhood influence my judgement on this sort of matter. It's a choice he might now be stuck with, but it's also a choice. How flexible he is after making those choices has bearing on what we think the practical results of tax changes are, with respect to aggregate demand, etc., but they don't have much bearing on the morality of taxation.
3. This line bugs me specifically:
Since we care the education of our three children, this means we also have to pay to send them to private school.All parents care. Okay, not the psychopathically selfish ones, but in general all of them care. Henderson happens to care enough to spend ~10% of his pre-tax income (I'm ball-parking here) on private school tuition. But you can't simultaneously tell me you care so much that you sacrifice other spending for their education and also claim that your hands are tied because that money is spoken for. If you care so much that you're willing to sacrifice then you can't treat that spending as inviolable. It has to be voluntary to be a sacrifice.
When you make a decision you can't claim all the upside as a voluntary and noble choice you've made, but then turn around and claim the downside as suffering that's been thrust upon you.
Henderson is concurrently telling me "I care so much that I've made choice X" and "I don't have the money, my hands are tied, it's not a choice."
It's another aspect of this situation:
The Atlantic | Megan McArdle | The Heroic 'Sacrifice' of Underpaid ElitesIn both of these situations people "made a sacrifice" compared to the situation in which they get to eat cake and also have cake. But if you think the certain mix of benefits from your job is the best one for you, or the mix of educational quality and cost is the best one for your kid, you're not making a sacrifice, you're just choosing the option you like the best among several choices.
Conor Friedersdorf recently posted this thought:
Though it isn't defensible, it is unsurprising that a lot of people who eschew offers to work at these firms, favoring public sector work instead, imagine that they are making an enormous personal sacrifice by taking government work. The palpable sense of entitlement some of these public sector folks exude is owed partly to how few of 'our best and brightest' do eschew the big firm route (due partly to increasing debt levels among today's graduates, no doubt).[...]
Speaking as someone who attended one of these lustrous graduate institutions that allegedly produce our "best and brightest", I'd like to say . . . knock it off. Stop patting yourself on the back. You can seriously damage the ligaments in your shoulder that way, as I discovered when pursuing an ill-placed mosquito bite too vigorously.
You know how much credit I deserve for giving up highly paid professional work in order to spend my days boring the hell out of you all with my breezy explanations of present value calculations? None. Am I performing a public service? I hope so. I take my profession seriously, and like to think that I am adding something to the public understanding. But that was my choice. I knew what I was giving up when I made it, and I also knew what I was getting. Which is to say, a job that I absolutely love more than anything I've ever done, a chance to speak to interesting people and see amazing things all the time.
Getting to do those things involved a tradeoff. [...]
I took the job because I think this is a great tradeoff. My classmates who went to banks and consultancies mortgaged their late twenties and early thirties doing work I would have found much less rewarding; they are enjoying the payoff now--at least the ones who didn't simply lose everything when Lehman and Bear went down. I don't want to say they "deserve" it, because almost anyone in that sort of position has had an enormous amount of luck along with their hard work, starting with being born to the right family. But I don't begrudge it to them. I think I got the better end of the deal.
And so do the folks who took jobs in government or academia or the non-profit sector. Maybe a few of them really "made a sacrifice" for some obscure reason involving widowed mothers and villanous landlords with a penchant for late-night visits to the railroad tracks, but most of them took the job because they thought they'd like it better. The kind of people who are actually willing to make the sacrifice of doing something they hate in the name of the greater good tend to join monestaries or the army, not the Political Science department at Penn State.
4. Ultimately I think this kind of "'the rich' can afford it"/"no we (or they) can't" business is a waste of time. At the end of the day I end up standing with the people in Henderson's "no they can't" corner — though I think a lot of people in that camp overblow how bad it's going to be. But like I said I think it's missing the point.
Kids Prefer Cheese | Angus | Missing the PointIt really creeps me out when people start talking about what taxes "we" can impose, as if the primary consideration is one of capability. (1) There is no "we" and (2) it's not about whether the state can get away with it, in terms of macroeconomic, electoral or other consequences.
The sometimes reasonable Matt Yglesias tweets that "we can incentivize savings without huge giveaways to rich people". Over at Slate, the rarely reliable Dan Gross opines that people making over $250K can afford a tax hike. Over at Econospeak the title is "Tax increases on the rich will not greatly reduce aggregate demand".
All of this is so strange. How is not raising someone's taxes a "huge giveaway"? Who is "we" exactly? Since when is whether someone can afford it the rule for choosing how much to tax (well, I'm given to believe that's how taxes were collected back in the middle ages)? How is the fact that a person may not do exactly what 1960s Keynesian economics wants them to do with their money grounds for taking their money?
As soon as we start talking about whether some person can get by if the government allowed them to keep less of their stuff we obscure the ugly fact that the government is taking that guy's stuff. Some of that taking may be necessary for all of the goodies people want from the state, but let's not forget that we're talking about taking people's stuff.
I'm willing to accept taxes as the "price we pay for civilization." (As I've mentioned before I think this view is mistaken, but it's also useful.) I can accept, rhetorically at least, that taxes are the cost of hiring a state to impose order on society. And because of coordinated action problems, etc. we need to do the necessary evil thing of knocking on people's doors and demanding they hand over some lucre to make the gears turn. I can live with saying "someone needs to give up their money to pay these bills, and we might as well make that someone be people who will suffer the least from having less."
Where I get very uncomfortable is when we move from talking about taxes as something we have to do to people to something we get to do to people. As soon as the conversation shifts to what taxes we can impose then taxes are being viewed not as the payment we require for government but as a punishment we're imposing on people we don't like. Now we're saying "ewwww, I don't like how much money that guy has; I don't think he deserves it; let's take some away."
Taxes are a necessarily evil way to keep the wheels in motion, not an method of expressing your envy or punishing people you don't like.
5. I'll echo Tyler Cowen's point: a lot of people are saying that Henderson has no business complaining because he's already so much better off than so many others. By this same logic though the lower middle class worker has no right to complain if we raised his taxes, because he's still better off than so many others. By this train of thinking you have no grounds to complain unless you are the least well-off person in the country. The "shut up, things could be worse" arguments is never, ever applied consistently.
Cowen also links to this envious troglodyte, who is exactly the kind of person I mention getting freaked out about in point #4. Taxes should be imposed with contrition, not glee.
6. A lot of people in my end of ideologyspace worry about top marginal rates of taxation discouraging people from being successful. I think these worries are worth considering, but typically overblown at current US rates. What I do worry about though is the disincentive from a society-wide attitude that assumes being rich is undeserved and looks at high-income earners as milk cows. I think that kind of attitude will sink in and discourage achievement much more than a couple point bump either way in marginal tax rates.