There is a favorite pastime amongst politicians: To divide people into groups and pit them against one another in order to further an agenda.
Typically, it means accusing group A of doing something at the expense of group B, so that group B will become angry enough at group A to rally support to stop said activities.
The most common example of this is, and has been for centuries, to pit the wealthy against everyone else – especially the poor. This is usually done by claiming that the wealthy are not paying their fair share.
Of course, what constitutes a “fair share”, nobody seems to know. But the amount that is “fair” seems to rise every year. Once one tax rate is met, the bar is raised higher. Even if the “wealthy” were to pay 75% of the tax base, it would most likely not be enough.
An interesting twist on the claim of the wealthy not paying their fair share, is when some of the wealthy claim that they would prefer to raise taxes on themselves. How magnanimous! One such example is a group of high net-worth Americans that call themselves “The Patriotic Millionaires”. They are made up of around 200 people, affirming themselves to the group of the “wealthy”. Their primary claim is that they are not being taxed enough, and their secondary mission is broadened to include demands for an increase in the US national minimum wage.
How much – according to the Patriotic Millionaires – is their fair share of taxes? The Chairman of the group, Morris Pearl, in an interview with Fox News’ Stuart Varney on December 19, 2016, voiced the claim that he believes a rate of 39% is fair. The current top rate for married couples is 39.6%, so I suppose he merely wishes to sustain current rates rather than increase them as the group’s goals suggest. Pearl says he does not want Donald Trump to follow through on his promise of cutting taxes (Trump has said he would cut taxes for all Americans at every tax bracket).
When pressed by Varney on what Pearl would do with his additional funds if he were to receive a tax cut, Pearl first suggested that he, and his millionaire friends, would contribute it to charitable interests. When pressed a little harder, he admitted that it likely wouldn’t be spent on charity, but would more likely be invested; with the claim that investing the money is less helpful to the economy than spending it – as poor people usually do with their excess funds.
So, let’s imagine what happens to the economy when a person (apparently selfishly) invests money rather than simply spending it. I’m not an economist, so perhaps my views will be overly simplistic, but I think they are accurate.
When money is invested in stocks, for example (I do believe this is the form of investing of which Pearl speaks), that money either goes to the people who are the current stockholders (to be used for reinvesting in other stocks, spending, or stored as savings) or it goes directly to a corporation that is used for investment and spending. Money kept in banks, through savings, goes to help fund business ventures, more investments, and more spending through loans to individuals and businesses. All these activities create stimulus throughout the economy.
So, not only is Pearl wrong in his assumptions of expenditures being superior in effect on the economy; but he is also ignoring the fact that, if he is so concerned with helping the poor, he could simply give them his additional savings from lower taxes directly. He suggests that it is selfish to argue that the wealthy should receive tax cuts, but on the other hand, he claims to be selfish himself when he receives such tax cuts. It’s a bit of a confusing sort of message for his group of Patriotic Millionaires.
I would question whether the Patriotic Millionaires are really calling for wise use of their money. I have no idea what the actual net worth of these individuals is, nor any idea of their annual incomes. However, let’s assume for the sake of argument that we have a group of 200 people, each with an annual income of $1 million more than the top tax bracket – we will call it the Patriotic 7 Figures group. So, their combined, total, annual income, above all other tax brackets (the top rate for our imagined Patriotic 7 Figures group) is $200 million. They would pay a combined, top tax, of $79.2 million. Let’s say we cut their tax rate at the top level to 34.6% from 39.6%, so we save them $10 million each year. It has been claimed, in a book by Michael Tanner of the Cato Institute, that as much as 70% of each dollar allocated to welfare expenditures goes to administration costs rather than to recipients. So, if their $10 million had been spent by the government, the poor would have only received $3 million. Private charities however, typically only spend about 10% on administrative costs. So, if they were to take their savings and donate to charities, the poor would have received about $9 million: a $6 million increase.
If we take the assumption of Morris Pearl – that poor people spending money is a better stimulant to the economy than wealthy people investing money – then the Patriotic Millionaires would be better served to save as much as they can in taxes, and donate the proceeds to charities, rather than invest them. It’s something that they clearly have the option to do. Perhaps it is more selfish to suggest the government raise the tax rate than it is to make charitable donations. Perhaps their insistence that President-Elect Trump not cut their taxes, is detrimental to the poor, and the economy, rather than helpful. Perhaps the best way to be magnanimous isn’t to refuse tax cuts, but rather insist that those taxes be cut, to provide better aid for private charitable projects.
This post was written by Danny Chabino.
The views expressed here belong to the author and do not necessarily reflect our views and opinions.