4. Good Rich versus Bad Rich
The rich are as replaceable as you or I. Many of them like to think they are not, and they’d especially like others to think they are not, but they are mostly as economically expendable as anyone else. The rich often like to tell us how strong they are. We should believe them. It means they neither need nor deserve special treatment.
I want to be clear, I am not against the rich: It would be great if as many people as possible were rich, especially if at the same time as few as possible were poor. But if I may simplify for the sake of a useful argument, there are at least two kinds of rich: the good rich and the bad rich; the in-it-together rich and the in-it-only-for-themselves rich; those who take an enlightened view of their interests, and those who seek only their own narrow, short-term advantage. The good rich try not to do anything to harm their communities or the country. The bad rich have no such qualms. The good rich see their role as succeeding by creating value and contributing to the public good. The bad rich succeed by exploiting others, ignoring the costs they impose on others, and seeking to contribute as little as possible to the common good. The more of the good rich we have, the better we all do. The more of the bad rich we have, the greater is our social insecurity, and weaker is our ability to protect the “public good.”
One good way of categorizing any particular rich person is their position on taxes— everyone’s legally and ethically required contribution to the total cost of running the country. Anyone who avoids, or evades, or cheats on their taxes reduces the resources available for promotion of the “general welfare,” which the Founders defined as a constitutional duty, on a par with ensuring the common defense. A particularly disloyal form of this tax treachery is when the bad rich lobby for and secure legal loopholes that let them treat their taxes differently, loopholes through which their loyalty leaks. Mitt Romney pays a tax rate of less than 15% in large part because of the “carried interest” loophole that allows him to classify his pension income as capital gains. You can’t classify your pension income as capital gains, but he and his private-equity peers can.
The Wall Street Journal quoted an expert who explained how some private-equity titans might react if required to pay taxes at ordinary rates: They might “decide the deal simply isn't worth it for them,” that “if we’re only allowed to keep $6.5 million of every $10 million fee—rather than the $8.5 million we now get—we'll just retreat to the golf course or find some other business, and millions of Americans will lose their jobs because we won't be there to turn around their companies.”
That’s the threat private-equity titans wield to extort special treatment. But if that’s the best argument they have, we needn’t worry. These rich are replaceable. We should have greater faith in the entrepreneurial energy and spirit of Americans than they do. And we should be happy if the current lazier rich decide to work less, because they will have to pay tax at the same rate you and I do on our so-called ordinary income. Other hungrier, harder-working, smarter, more efficient soon-to-be-good-rich folks will step up to do those deals even if they are only making $6.5 million. They are precisely the kind of rich we need more of. Their success strengthens the nation, while success that depends on special tax treatment weakens us all.
Romney would like to lower the top income-tax rate, arguing that this would spur economic growth. But that’s just his dogma talking; he’s putting his free-market faith above what the evidence of experience and data demonstrate. Economic growth was higher during the Clinton and Reagan administrations, when top tax rates were higher, and there was less growth under George W. Bush, who cut top tax rates. The simplistic idea that top tax rates are a drag on the economy is simply an error. Or perhaps Romney thinks business titans today are just not as capable or as strong or as skilled or as hard working as those who built the booming economies of the past, when taxes were higher.
Let me end by repeating, we need more good rich, and as many as we can get. Rich folk like Warren Buffet who sees no reason why he should pay a lower total tax rate than his secretary. It’s time we used the rules to encourage the bad rich to get themselves replaced by the better-for-us-all good rich.
I want to be clear, I am not against the rich: It would be great if as many people as possible were rich, especially if at the same time as few as possible were poor. But if I may simplify for the sake of a useful argument, there are at least two kinds of rich: the good rich and the bad rich; the in-it-together rich and the in-it-only-for-themselves rich; those who take an enlightened view of their interests, and those who seek only their own narrow, short-term advantage. The good rich try not to do anything to harm their communities or the country. The bad rich have no such qualms. The good rich see their role as succeeding by creating value and contributing to the public good. The bad rich succeed by exploiting others, ignoring the costs they impose on others, and seeking to contribute as little as possible to the common good. The more of the good rich we have, the better we all do. The more of the bad rich we have, the greater is our social insecurity, and weaker is our ability to protect the “public good.”
One good way of categorizing any particular rich person is their position on taxes— everyone’s legally and ethically required contribution to the total cost of running the country. Anyone who avoids, or evades, or cheats on their taxes reduces the resources available for promotion of the “general welfare,” which the Founders defined as a constitutional duty, on a par with ensuring the common defense. A particularly disloyal form of this tax treachery is when the bad rich lobby for and secure legal loopholes that let them treat their taxes differently, loopholes through which their loyalty leaks. Mitt Romney pays a tax rate of less than 15% in large part because of the “carried interest” loophole that allows him to classify his pension income as capital gains. You can’t classify your pension income as capital gains, but he and his private-equity peers can.
The Wall Street Journal quoted an expert who explained how some private-equity titans might react if required to pay taxes at ordinary rates: They might “decide the deal simply isn't worth it for them,” that “if we’re only allowed to keep $6.5 million of every $10 million fee—rather than the $8.5 million we now get—we'll just retreat to the golf course or find some other business, and millions of Americans will lose their jobs because we won't be there to turn around their companies.”
That’s the threat private-equity titans wield to extort special treatment. But if that’s the best argument they have, we needn’t worry. These rich are replaceable. We should have greater faith in the entrepreneurial energy and spirit of Americans than they do. And we should be happy if the current lazier rich decide to work less, because they will have to pay tax at the same rate you and I do on our so-called ordinary income. Other hungrier, harder-working, smarter, more efficient soon-to-be-good-rich folks will step up to do those deals even if they are only making $6.5 million. They are precisely the kind of rich we need more of. Their success strengthens the nation, while success that depends on special tax treatment weakens us all.
Romney would like to lower the top income-tax rate, arguing that this would spur economic growth. But that’s just his dogma talking; he’s putting his free-market faith above what the evidence of experience and data demonstrate. Economic growth was higher during the Clinton and Reagan administrations, when top tax rates were higher, and there was less growth under George W. Bush, who cut top tax rates. The simplistic idea that top tax rates are a drag on the economy is simply an error. Or perhaps Romney thinks business titans today are just not as capable or as strong or as skilled or as hard working as those who built the booming economies of the past, when taxes were higher.
Let me end by repeating, we need more good rich, and as many as we can get. Rich folk like Warren Buffet who sees no reason why he should pay a lower total tax rate than his secretary. It’s time we used the rules to encourage the bad rich to get themselves replaced by the better-for-us-all good rich.