The Whining of the Rich

A week ago a topic of conversation was the rich, whining about letting their tax cuts expire. There seemed to be two big threads.

First Ben Stein wrote Raising My Taxes Is a Punishment. "But what I don't get is this: There is no known economic theory under which raising my taxes in the midst of a severe recession will help the economy recover. It isn't part of any well known monetarist or Keynesian theory. So if it does no good to raise our taxes, I assume we are being punished."

digby really doesn't like Ben Stein and here's why, There's No Crying In Nieman Marcus. I'm not a big fan either, most recently because of this, The End of Wishful Thinking. "The people who have been laid off and cannot find work are generally people with poor work habits and poor personalities."

But on a more factual rebuttal there's this other thread that started with this post by Todd Henderson, We are the Super Rich. "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." He's a law professor at the University of Chicago and his wife is a doctor and they're having problems making ends meet.

Michael O'Hare then tried to fill in some of the math that Henderson left out, The whining of the rich. "So how does our third-of-a-million-a-year law prof/doctor couple and their three kids, barely scraping by already and falling before our eyes to the very bottom of the top 1% of US families by income, make out under Obama’s rapacious soak-the-rich commie attack on all that is holy and American and fine? Wait for it; take a guess before the jump: His taxes will go down $3700; he can buy one of those ties every two weeks! And this guy is threatening to fire the gardener and the house cleaner, take the kid out of art class, turn off his cell phones, and try to raise competent adults with only basic cable. Prof. Henderson, I’m ashamed to share my profession with you."

Brad DeLong posted a fair amount of this and Henderson commented and DeLong really went into it In Which Mr. Deling Responds to Someone Who Might Be Professor Xxxx Xxxxxxxxx. "Now it is time for a reality check on this "most working Americans." The median household income in the United States today is $50,000. Half of all households make more than this. Half of all households make less. The big expenses in the Xxxxxxxxx family budget--their $60,000 a year in contributions to tax-favored retirement savings vehicles, their $25,000 a year savings building home equity, their $55,000 for housing, their $60,000 in private school costs, even their $10,000 a year for new cars--are simply out of reach for the overwhelming majority of Americans. Half of all households make less than $50,000 a year--the Xxxxxxxxxs make nine times that. 90% of households make less than $100,000 a year--the Xxxxxxxxx's make 4.5 times that. The Xxxxxxxxx's are solidly in the top 1% of American households, in the select 1% group that receives more than $350,000 a year."

"Professor Xxxx Xxxxxxxxx's problem is that he thinks that he ought to be able to pay off student loans, contribute to retirement savings vehicles, build equity, drive new cars, live in a big expensive house, send his children to private school, and still have plenty of cash at the end of the month for the $200 restaurant meals, the $1000 a night resort hotel rooms, and the $75,000 automobiles. And even half a million dollars a year cannot be you all of that.

But if he values the high-end consumption so much, why doesn't he rearrange his budget? Why not stop the retirement savings contributions, why not rent rather than buy, why not send the kids to public school? Then the disposable cash at the end of the month would flow like water. His problem is that some of these decisions would strike him as imprudent. And all of them would strike him as degradations--doctor-law professor couples ought to send their kids to private schools, and live in big houses, and contribute to their 401(k)s, and also still have lots of cash for splurges. That is the way things should be."

DeLong then does a really good job explaining why he things Prof Henderson thinks the way he does. How incomes above and below his have changed in the last 30 years and how that affects how people perceive their standing in society. It's really worth a read.

Ezra Klein expands on the explanation for Henderson's feeling not super-rich. The rich are not bad. Just rich.. "Which is all to say that this debate has gotten a bit confused. The argument for taxing people who make more than $250,000 isn't that they're bad people, and it isn't that they won't notice the tax increase. It's that we've got a very large budget imbalance, and we're going to need to do a lot of things to correct it. Taxes on the rich have dropped even as the incomes of the rich have skyrocketed. So one of the obvious things to do is update the tax code to correct for that drift. But eventually, we'll need to do much more than just increases taxes on the rich, and though politicians have tried to sell this one as a change that most Americans won't notice and needn't worry about, eventually, they're going to have to start talking about changes that people will notice, and should worry about."

Venture Capitalist Garrett Gruener wrote about The Bush tax cuts [from] an entrepreneur's perspective "No one particularly enjoys paying taxes, but one lesson we should have learned by now is that for the good of the country, we need to tax people like me more. At a minimum, we need to return to the tax rates of the Clinton era, when the economy performed far better. Simply taxing the wealthiest 2% of Americans at the same rates they were taxed before the Bush tax cuts could reduce the national deficit by $700 billion over the next 10 years. Remember, paying slightly more in personal income taxes won't change my investment choices at all, and I don't think a higher tax rate will change the investment decisions of most other high earners. What will change my investment decisions is if I see an economy doing better, one in which there is demand for the goods and services my investments produce. I am far more likely to invest if I see a country laying the foundation for future growth"

Kevin Drum summed that up nicely as "Fine. Gruener is a lefty. But this is the simple truth: changing the top marginal rate from 35% to 39.6% will have no measurable impact at all on work or investment decisions. From a macroeconomic perspective, it will reduce the future deficit and nothing more. It's a pure win for everyone, even the rich."