"Why America’s Rich Should (and Many Do) Support A Tax Increase" By: Robert K. Lifton

 
While raising the debt ceiling has generated an untoward amount of conflict and anxiety, the really tough fight still lies ahead of our country – how to enact a program that reduces deficits and ultimately the overwhelming national debt. Any effort in this direction places the question of tax increases front and center. Warren Buffet, America’s wealthiest person, has so often stated his belief that taxes should be raised for the richest Americans that it has become a commonplace. But some were surprised, including the conservative anchors of CNBC’s Squawk Box, to hear a Home Depot founder Ken Langone, who has all the right conservative credentials, support raising taxes and even suggest that the distinction between taxes on capital and on earnings should be revisited. While most of the wealthy people have not been public about their views, I can report anecdotally that every affluent person I have asked about the subject has agreed that an increase in taxes is necessary as part of a program to reduce our nation’s deficit and mounting debt. This position by the wealthy is not some altruistic impulse but makes practical sense for them.

To start, it is clear that the continued pattern of increasing our debt has helped erode the value of the dollar and eventually will reduce our nation’s credit rating and result in a devaluation of our debt instruments. The failure of our political leaders to come to grips with a viable solution to significantly reduce deficit spending has already raised questions about the ability of our democracy to take the necessary difficult steps to reduce our reliance on debt. (see my Huffington Post blog: “Jobs Deficits and the Coming Test of America’s Democracy”) This failure is taking its toll on stock and bond prices and continued inaction will further damage securities values. The reduction in those values impairs the wealth of rich Americans far more than any increase in taxes. “The rich are different from you and me” famously said F. Scott Fitzgerald. One difference is that the ratio of wealth to income of the rich is far greater than for average Americans. Thus, even a small loss in the value of a wealthy person’s portfolio is far more consequential than a similar percentage increase in taxes on their income. For example a five percent loss on each ten million dollars in assets amounts to $500,000 while a five percent tax increase on each $1,000,000 of income is only $50,000. Thus, it makes sense for the wealthy to support an increase in taxes if that helps significantly to reduce government deficit spending and borrowing which threatens the values of their stock and bond holdings. And the rich know full well that there is no way to reduce the deficits and the debt without increasing revenues by raising taxes. A simple look at the US budget tells the story. The bulk of spending falls into three categories that theoretically are within the government’s power to control: social security, which has not itself caused any shortfall, health care and military expenditures. The fourth large cost – interest on the national debt -cannot be controlled. After these items, there is just not enough money in the rest of the budget - even if every single item were cut to the bone -to allow the nation substantially to reduce the debt burden. Moreover, the only way to induce the American public to agree to the painful reductions required in the budget is too show that the pain is being shared by the affluent among us.

Wealthy Americans also understand that the richest of us have benefitted enormously in the extent of wealth accumulation compared to the rest of the nation. The concentration of wealth in the hands of a small percentage of the population has been increasing and that trend has accelerated since the Bush tax cuts to the point where the top one percent of the population now has double the net worth of the bottom 80 percent. As the larger population feels the pain of continuing unemployment and the loss of what little wealth they have in their homes, the growing wealth gap can result in a challenge to the capitalistic system that allows this differential to continue. Especially is this true as the broader population feels increasing pain from the reduction in programs like Medicare, Medicaid, and food stamps that helps assuage some of the economic distress.

More than most, wealthy Americans also recognize the illogic and specious nature of some of the arguments presented against raising their taxes. They know, for example, that raising their taxes will not in the slightest reduce their incentives to keep on working and producing wealth. In the 1950’s and into the 60’s when the marginal tax rate reached over 90 percent, people did not stop working. On the contrary, they worked harder to keep more of their earnings. The wealthy also know that increasing taxes will not reduce investments in worthy projects. There is no shortage of money in the hands of the wealthy and in the coffers of the banks and other lenders and investors. The problem for them today is to find deserving investments in an economy that is declining because of the enormous deleveraging that is taking place after the burst of the huge bubble and the joblessness that is limiting consumer spending. They know, as well, that rather than reducing confidence, an appropriate increase in taxes accompanied by reduced expenditures that address the debt issue will increase confidence in the country and its political system.

The ultimate irony is that while the wealthy are prepared to pay higher taxes because it best serves their interests, the Tea Party ideologues are in the process of destroying the wealth by refusing to accede to any program that raises taxes on the rich in order to reduce the deficits and debt. Their intransigence threatens the wealth of America. It is time for the rich to get off the sidelines and make clear to their representatives in government and to the media that the Tea Party and their converts are acting against their true interests.

Mr. Lifton, a business man and political activist is writing a book entitled “Life’s Lessons and Stories from a Member of the “Greatest Generation.’”

Comments

[blowback]

Perhaps they should establish a PAC to push their point of view and provide funding to those candidates for political office who support a more progressive tax system. Instead, the only one we seem to read about is the PAC funded by the Koch brothers (relatives of the Kray twins?)

[Fred]

"The fourth large cost – interest on the national debt -cannot be controlled." The interest rates on new Treasury bonds is zero or close to it. Obama should sell as many of those bonds as possible using the proceeds to pay off bonds that actually carry interest. Repeat as necessary until the 'interest' on the nation debt is zero.

[Byron Raum]

It's a very smart idea, Fred. It does, however, suffer from one complication. If you start buying an item in a marketplace, its price goes up. As soon as the Fed starts buying up higher interest rate bonds, they are going to start rising disproportionately in price. I am sure the Feds are already doing this to the extent it is possible while not paying an exorbitant amount for them.

Besides, we have been in a low-interest environment for a while and if the Tea Party doesn't succeed in its crusade to raise interest rates, it is reasonable to expect this comfortable environment might continue for a while. As bonds mature, newer bonds all pay lower rates.

US Government Bonds are essentially what very large institutions use to park their money in. Everyone seems willing to lend it to us. If we were in a better political environment, we would be borrowing money hand over fist and spending it on useful projects to both increase employment and stimulate the economy. I cannot help but wonder what historians will say about a people who chose poverty over prosperity.

[Andy]

Mr. Lifton,

Since we are well past the point where half-measures will work, raising taxes on the wealthy (however one defines that) is a sensible thing to do, but is woefully insufficient by itself. Taxes need to go up for pretty much everyone (ie. let all the Bush/Obama tax cuts expire), spending needs to be reduced substantially and, most importantly, entitlement cost growth must be contained, particularly health care. There is simply no level of taxation that can keep up when costs grow 2-3 times the rate of inflation.

Fred,

Yes, interest rates are near zero (or even negative, taking inflation into account) for short-term debt. The problem is that such debt is not going to be paid off before it will be rolled over into new debt at whatever interest rate we have in five years or so. That's all assuming that all of our debt can be rolled over now to these low interests rates, which isn't possible.

[Chris E]

The rich who believe this are outnumbered by the rich who don't.

[Fred]

Andy,

Don't issue 5 year notes, use ten and thirty year T bills. Roll over all that can be.

[William R. Cumming]

Few in the top 1% by wealth manage their own porfolios or prepare their own tax forms. why is this significant? They actually do not understand the implications for the future of the erosion of both the tax base and constant investment of their capital abroad. But hey the USA is propped up to some extent by flight capital from abroad. For example 80% of downtown DC real estate owned by foreign trusts with domestic subsidiaries. Few actual taxes paid to DC government.

[Andy]

Fred,

People can't be forced to buy T bills. The reason that short-term T bills have an effective negative interest rate is because demand for them is so great that it's pushing the yields down. If you take away the shorter term options then that money isn't going to automatically be invested into 10 or 30 year treasuries - it's much more likely it will end up invested elsewhere. Such a limit would therefore seriously damage the our national capacity to borrow funds and meet our obligations and it is a policy that simply isn't going to happen.

There are no magical ponies here - we can and certainly will borrow a lot more money - but that money won't be paid back for decades or longer. No one can guarantee that interests rates will remain this low - in fact they don't have any place to go but up - so any "free" borrowing will be temporary.

[R Whitman]

Andy:

I tend to agree with you on the tax issue even though it will cost me a lot.

On health care, the only way that will change is to devise some alternate system of delivery. The current system is just too expensive. I have no idea how to design a less expensive delivery system. Any ideas???

To cut Defense spending, there has to be a complete review and re-ordering of the foreign policy aims of the USA. Only after that is done, can we devise a lower cost defense posture.

[walrus]

Yes, thinking wealthy people are aware that they should be paying significant tax. I can confirm Mr. Liftons observations. However that is not the real issue, nor is it the problem. The heart of the matter is who wields political power.

The current "pay more tax" debate is a re-run of the health care debate. Then, as now, public attention was focused on the symptom and not the problem. Everyone wailed about how to pay for health care - and studiously avoided talking about the obscene cost and inefficiency of the system itself - about Two and Half times what Europe pays in GDP terms for worse outcomes.

So let's pay more tax. To do what? Retire debt? Fine. However what is the point of doing that when the rest of the boondoggles keep going? It's like a drunk piously putting Ten dollars in the collection plate on Sunday, then staggering off for another bar session.

As I have said before, the economic fundamentals of America are good - provided you can sweep away at least Forty years of uneconomic rent seeking and pointless Federal/State pissing contests.

Things like the Lousiana Retail Florists licence:

http://www.ldaf.state.la.us/portal/News/PressReleaseCurrent/tabid/92/ItemId/1387/Default.aspx

Things like the State Of Maine trying to collect sales tax on visiting aircraft:

http://www.aopa.org/advocacy/articles/2011/110428pilot_wins_four-year_battle_over_26000_dollar_fine.html

Talking about paying more tax is pointless until the systems that allow such economic obscenities as those above are comprehensively neutralised for a start.

We can then start talking about such things as the return on investment from excellent public education.

By coincidence, yesterday all Australian States finally agreed to sign a momentous funding agreement with our Federal Government to reform our semi private single payer health system to remove incentives for "cost shifting" and clarify responsibilities and authorities.

http://www.abc.net.au/news/2011-08-02/govt-gets-backing-for-health-reform-deal/2820278

[Andy]

R Whitman,

The current system is just too expensive. I have no idea how to design a less expensive delivery system. Any ideas???

That's the trillion dollar question! There are a lot of proposals and a lot of advocates for those proposals who seem very confident they will work. Personally, I'm skeptical, but at the moment I'm leading toward a single-payer capitation system but it's certainly not without defects.

Also agree with regard to defense spending which doesn't happen in a vacuum. We have numerous alliances and allies that we are expected to defend. To fulfill those obligations requires a credible capability to deploy forces a timely manner, which is a capability that doesn't come cheap. So we certainly do need to reexamine our foreign commitments. I also think we could move much of the Army and Air Force to the reserve component once we're finally done with Iraq and Afghanistan.

Of course none of that is very likely for the time being. Big changes can only happen incrementally or in response to a clear-and-present crisis.

Rick,

No, there's no law at all. In fact one can specifically give the government money for the purpose of paying down the debt and even use a credit card to do it!

[Charles]

Lifton wins the Pauline Kael award for not knowing anyone who holds a different opinion, but if the rich really feel they are undertaxed, they have the ability to pay more. Just stroke a check. No one is holding you back. No one is forcing you to hire a tax lawyer and accountant to find every loophole. Do your taxes yourself at home on Turbotax and, if you think the final number is too small, disallow your own deductions. Give till it hurts. Buffett and others don't seem to have the strength of their convictions -- like the apostle of global warming riding in his private jet.

Run the numbers. There is barely enough income in the top quintile to cover the deficit even if you confiscate it all. Will people stop working if the return is not there? Of course they will. I would. If I kept 10% of my marginal income and gave 90% to the government, you can bet I would work less, and so would Lifton. Reagan did. He says in his memoirs that in that exact situation he passed on doing more movies because his leisure only cost him just 10%, not 100%, of the income he would have made.

The most true statement in this is that at 90% marginal rate people worked harder to keep more of their money. Absolutely true. They pointed money into all sorts on non-productive investments that shielded the money from taxation. They spent more time figuring ways to prevent confiscation of their money than earning more because it was more beneficial; earning got 10%, jiggering the tax code or exploiting a loophole could get a portion of the 90% back -- potentially much more than the 10%. It was a windfall for tax lawyers, but unproductive for the high-earners or for the country.

We are so far down the rabbit hole on spending we can't even see daylight so "cutting" 2T from a 10T deficit increase in the next 10 years looks like a budget cut. If we cut the budget, why are we borrowing 8T more? Compare the spending and the revenue curves. Spending is almost vertical.

[R Whitman]

Andy:

You mis-interpreted me regarding medical care. The real problem is not in the payment system but in the delivery of medical care to the patient. In my own circle of Medicare friends we have a number of overusers of the system. They go to the doctor for every hangnail. The doctors do not care, they get paid the same for seeing a hypochondriac as a real sick person. Some sort of disincentive needs to be built into the patient care system to account for this. This is one of the main things I was trying to get at.

[Andy]

R Whitman,

Thanks for the clarification!

[Byron Raum]

The problem with your idea, Charles, is that there are no millions of people living on the public dole who are sucking out the lifeblood of the economy. People have paid for the Medicare and Social Security already. By your argument, we are doomed.

[PS]

Charles:

Only the far-left is talking about restoring fiscal balance entirely through taxes on the top few percent. (Letting the Bush tax cuts expire would get us quite far towards a sustainable fiscal course, though.) I don't understand the position that because either cuts or taxes can't do the job alone taxes/cuts should be kept off the table. This type of logic only works in some strange Alice-in-Wonderland world but has infected both ends of the political spectrum, making any reasonable solution harder.

[bill roche]

Dear Mr. Lifton:
I was born dirt poor. My parents were the children of immigrants who did not speak English (before the days of ESL classes you know). Neither of my parents got a high school education...children of the depression themselves. I "sent" myself to college and grad school, volunteered for the service and gave my country three years of my time. I suspect that your backround must be remarkably similar to mine. Right? Now I have "some" wealth. I worked VERY hard to get it. Saved and Saved. But you would like to see those with money pay in even more (what percentage of total tax revenues do the top ten percent of earners pay in already?). If you have a spare $100,000 please do write your own check to the IRS. Once you have your way and taxes are increased on high earners it may affect me (maybe someday). Tea Party intransigence, ideologues, destroyers, refuse to accede to "any" program to raise taxes on the rich. Indeed. "any wealthy person that you have spoken to accepts higher taxes" and you have spoken to all wealthy persons have you? You mentioned cuts to food stamps, medicare, and medicaid. Oh, these have been cut? A pity, I have been paying into medicare for the past fifty years and just as I turn 66 you tell me it has been cut. Are you referring to Obama care taking 500 billion out of the paid in medicare fund to pay for nationalized health care? Higher taxes? "speak for yourself Robert"
Billy Roche

[steve]

R Whitman,

Regarding medical care delivery systems, there is no need to reinvent the wheel.

Not saying that any particular system used by the rest of the industrialized first world countries can be automatically adopted by the US--all countries are different.

But there is enough variety out there that has proven effective at cost control that it would be useful to examine those--there's single payer Canada, there's Germany where I believe private insurers insure the majority (though heavily regulated and with cost controls and subsidies) of the population, there's France which I believe maintains a mixture of public and private, and so on.

[R Whitman]

Steve:

You miss the point. The problem is in the delivery and overusage of health care not in the method of payment. The current Medicare payment system works fairly well with just a relatively small amount of fraud.

[graywolf]

Anyone who thinks that higher taxes will go toward the deficit must live on a unicorn ranch.
Politicians will SPEND every dollar available and then keep on spending (see $17 tril. national debt).

How many of these "rich" friends of Lifton have EARNED the money?
Trust-funder guilt is a powerful force on the weak mind.

[Robert K. Lifton]

First, let me note that the only circumstance under which the rich would would support paying more taxes is if that were part of an over-all program that also reduced spending and addressed the deficit and debt issues. Making a contribution to the government would not accomplish those aims. (Moreover, I can't imagine anyone paying taxes unilaterally unless everyone else in that position also did so.)
Second, the timing for reducing spending and increasing taxes is obviously delicate given the parlous state of the economy. The problem that has to be addressed first is how to revive the economy which is suffering from structural unemployment resulting from lower competing costs of labor in other parts of the world combined with technological replacement of humans. Among other problems, we also face the reduction in wealth from the sharp drop in housing prices and the huge debt burdens that people are carrying. Since the Fed has "shot all its bullets" in monetary policy, we need an appropriate fiscal policy approach to ameliorate these conditions. In my view, a government financed program for the private sector to hire people to rebuild the nation's infrastructure is the kind of program needed to address unemployment and put money in the hands of immediate consumers but given the attitude toward Washington and the fractured government, a bi-partisan approach to such programs is highly unlikely.
Third, The largest and fastest growing cost and the one most difficult to address is health care. A significant cause of increased health care costs is longer life expectancy and the expenditures to extend those last years of life as well as the high costs of drugs and other efforts to extend life for very sick cancer and other patients. Yet, I don't believe that the American people will be willing to send the elderly and sick quietly to their graves. Cost cutting must come from other areas of health care. The system is rife with waste but it is hard to see who will monitor it. Putting people in a position where they have to negotiate their health care costs with their providers is not a viable solution. I can't imagine anybody with confidence in their doctor arguing about what medication to take or shopping around for a less expensive operation. That leaves only the government or third party payers like insurance companies to fight the rising costs and neither of them has any credibility with the public. I would be interested in any thoughts on this subject.

[Charles]

1. So paying more taxes is only the right thing to do if everyone else does it too. If it is right, then do it. If it is only right in a group, then it isn't the right thing to do.

2. So government jobs programs are the answer? It's worked with education, so why not for labor? We hear as an article of faith that improving our infrastructure would work miracles, but I have yet to see any analysis where it actually worked to carry local money to Washington, reduce it by the usual bureaucratic handling fees and vig, then fund a local project and end up with a net gain. Wasn't that the plan for the Porkulous bill? How much did we spend to improve infrastructure and education and how did that work out? Oh yeah, the projects weren't there and the ones that existed are bogged down in government red tape. But next time it will work.

3. Separating the payer from the service is the one way that will not work to restrain costs and that's what happens when the government takes over health care. I don't pay for dental insurance because I would rather self-insure and yes, I do shop around for service. If the government was paying, would anyone care how much health care cost? We don't care about the cost of education and we can see the results. We even have people saying we need to pay more than the 13k per pupil we pay in my town. 30 kids per class, the math is staggering.

[bill roche]

Dear Mr. Lifton
so a government program to encourage business to hire labor in order to build bridges roads airports etc etc. is what is called for. That, of course, will put the fed govt further into debt. Say, I have an idea, since we are putting the federal govt further into debt anyway why don,t we reduce taxes on the wealthy and corporations(the job creators) and let the demand in their pockets (thereby) act as economic stimulus. Why not? Because that is offensive to those who believe that only government should have that power. It offends you ieologically. It is Keyenes redux but Keyenes never considered the private side of increasing demand. As to the question of paying taxes, I note that again you choose to speak for all of the rich. Your comments re health care are thinly designed code for nationalization instead of market competition. Competition drives cost down, not government regulation and or administration.
regards
bill roche

[Robert K. Lifton]

To Mr. Roche I would reply that reducing taxes for the rich and the corporations will not create any more jobs because that is not their motivation. There is no shortage of funds in the hands of companies but they are not expanding because they are not seeing demand rising fast enough to support expansion. There is no shortage of funds in the hands of the rich but they are not creating new businesses because there is no demand for new business products. Rather they are heavily investing in Treasury bonds seeking safety. There is no shortage in the funds in bank but they are not able to find enough borrowers that warrant loans because the large companies are already loaded with money as are the wealthy people and there are too few other qualified borrowers to take advantage of all the available funds. Under those circumstances, we need to look elsewhere for some way to create jobs for those unemployed people who want to work and who will become immediate consumers priming the pump and encouraging companies to expand to serve them, the rich to invest in businesses that will serve them and the banks to lend money to new companies to serve them. It's not my "ideology" (which, by the way, happens to be reflected in over fifty-five years of creating, operating, buying and investing in many businesses and real estate properties to this day) it's my view of reality - a reality that seeks to create the same economic environment for my grandchildren and their generation that allowed me and my generation to enjoy the life we have.
I don't hold myself out as speaking for "all the rich." I am only trying to express a practical view on what will be needed to make a deal to reduce the deficits in a society that is sharply divided on how to accomplish that goal.
Finally, I have no "thinly disguised code" regarding health care. In fact, I don't think that nationalization is the right approach for health care. But having been involved in the field both as a supplier of health care as well as a consumer, I am concerned that some of the prescriptions for fixing the system are too simplistic. Charles tells us that he shops around for dental care. I wonder how many people actually shop around for medical care where price is the criteria for which provider they will choose and how many people have the knowledge to make judgements about the care they seek. My experience is that people generally follow the course prescribed by the doctor they trust if they can afford it and cost is not a determining factor.

[J]

Mr. Lifton,

This may sound simplistic to some, but to begin to solve the medical and economic ills of the nation, would be to re-institute the checks and balances that our nation once enjoyed that were the bulwarks of both solid health care and sound economics.

Re institute Glass-Stegal for the economic side, and Hill-Burton Act for the health care side. Ditch the Nixon era HMOs that put accounting ahead of the human condition.

Our nation's sound health care system that was once the envy of the world was founded on the Hill-Burton Act.

Glass-Stegal kept the skunks out of the economic hen houses, and the wolves at bay.