Harvey Golub is a very rich man filled with righteous indignation. The former CEO of American Express (and briefly the Chairman of AIG), Golub directed his umbrage at Warren Buffett and President Obama, for suggesting that the rich in general, and by implication Mr. Golub in particular, should pay somewhat higher income tax rates than they do now. In Golub's own words, from his recent Op-Ed piece on this subject in the Wall Street Journal:
I deeply resent that President Obama has decided that I don't need all the money I have not paid in taxes over the years... I certainly don't feel 'coddled' because the various governments have not imposed a higher income tax. After all, I did earn it.
Golub's Op-Ed relies on critical mischaracterizations of fact. Setting the record straight is not an exercise in nitpicking, but rather is needed to keep public discourse on this important topic from being derailed by inflammatory half-truths. Perhaps even more important, Golub's article accurately reflects the ethos of a large swath of the privileged classes, but in doing so reveals unexamined forms of arrogance that lie at the heart of our deteriorating ability to govern ourselves.
First, the facts. Golub writes that about half of all filers "pay no income taxes at all." From this Golub argues that nonpayers "should pay something and have a stake in our government ... too."
Let's put to bed for all time this trope that half of Americans have no "skin in the game." The income tax is simply one of a suite of federal taxes imposed on rich and poor in different proportions and collected through different mechanisms. The nonpartisan staff of the Congress's Joint Committee on Taxation -- the official scorekeepers to Congress for all tax matters -- looked at this question last year. They projected that in 2010 about 37 percent of all income tax returns would show no federal income tax liability. But when all federal taxes borne by individuals were toted up, the JCT staff found that every stratum of society -- even those making less than $10,000/year -- paid federal taxes. (The details of the study are available online at www.jct.gov -- it's document JCX-19-10. The study excludes dependents on someone else's returns, so the data are not skewed by the children of the affluent earning a few thousand dollars from a summer job. It also excluded estate tax, which did not apply in 2010.) Everyone has skin in the game.
When one includes state and local taxes, many of which are notoriously regressive, the effective tax rate on the poor is surprisingly high. In a 2010 study, Citizens for Tax Justice calculated that those in the lowest income quintile (with an average cash income of $12,400) paid about 16 percent of their income in tax. The top 1 percent, with an average income of $1,328,000, paid at an all-in rate of about 31 percent.
Turning to the fortunate affluent, Golub writes that the 250,000 American families who earn $1 million or more pay 20 percent of all federal income taxes. The same nonpartisan JCT study actually projected the number of 2010 tax returns showing incomes of $1 million or more to be 336,000 (good news for Mr. Golub!); that group (just 1/500 of all returns) was projected to earn about 11 percent of total personal income in the United States, and pay 26 percent of all federal income taxes -- but less than 14 percent of all federal personal taxes in the aggregate.
The simple lesson here again is that the income tax is just one of a suite of taxes; by design, it burdens higher incomes in particular, just as others are borne disproportionately by the poor or middle class. It's the aggregate tax burden that's relevant, and here one discovers that the U.S. federal tax system in its entirety is not nearly as progressive as many believe. In fact, it's taxpayers with incomes in the $200,000 -- $500,000 range, not Mr. Golub and his crowd, who get the worst of the deal; their all-in federal tax rate is significantly higher than that borne by those earning over $1 million.
Looking at federal income taxes alone, the JCT staff found that the over $1 million club faces effective income tax rates of a little over 24 percent -- hardly the punitive rates implied in Golub's Op-Ed piece. And when one gets to the superrich, effective federal income tax rates actually decline further, because so much of their income is taxed as long-term capital gain, at a 15 percent rate. The IRS publishes data annually on the 400 highest-income tax returns for the year. For 2008 (the most recent year), their effective federal income tax rate was only 18.1 percent. If one measured their tax liabilities against their true economic income (including items like tax-exempt municipal bond income and capital gains not yet harvested through a sale), that rate would decline still further.
Finally, let's return to the underlying themes that really tick Mr. Golub off. First, referring to his many tens (hundreds?) of millions of dollars, he observes that "he earned it." Of course that's true, in the sense that he apparently inherited very little wealth, is highly intelligent, has worked very hard his whole life, and in return has been paid extremely well for his labor. But is it really possible that Golub and his ilk are blind to how lucky they also have been? Many of those without tens of millions of dollars also work very hard, and many are as smart as Mr. Golub. The nature of life is that we do not control it; both our native talents and our good fortune are distributed through processes that we cannot fathom and do not "earn."
The income tax in particular is a kind of insurance policy. Imagine that we are all sentient disembodied beings, waiting to be born. We know the full range of possible paths that any new life might take, including the great probability that we will end up struggling to make ends meet. But we know nothing about our future selves. We do not know who our parents will be, how healthy we will be, or with what native endowments we will embark on life. We are offered insurance, in the form of a promise of some minimum level of support if we are unfortunate -- but being disembodied beings, we have no cash with which to pay the premium. The deal is we can pay in arrears -- if we hit the jackpot, we kick in a fair chunk of money, and if we end up with the short end of the cosmic stick, we get helped out enough to mitigate the most abject misery. Who among us would be so foolish as not to sign up?
Second, Mr. Golub writes that the federal government today violates "the implicit social contract between me and my government that my taxes will be spent -- effectively and efficiently -- on purposes that support the general needs of the country." Here Golub betrays the unconscious great arrogance that he shares with many other successful people. There is no contract, express or implied, between the United States of America and Harvey Golub. "The consent of the governed" does not mean that Harvey Golub, or any citizen, gets to pick and choose which government spending programs are smart, and therefore deserve his funding, and which are dumb, and from which he therefore can opt out. I happen to agree with many of his criticisms of wasteful tax expenditures and the like, but that's not by itself a principled basis for not contributing an appropriate share to fund whatever government our democratic system has delivered to all of us.
To date, Mr. Golub and I both have failed to convince our fellow Americans, and through them those rascals in Congress, that these programs are indeed wasteful. Instead of driving a wedge between Americans on the false issue of income tax statutory rates, or suggesting that he won't play ball until Congress meets his demands, Mr. Golub should apply his formidable talents and some of his considerable wealth to rallying support for his generally sensible list of spending and tax reforms.
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how? by sitting behind a computer screen and watching your interest compound? i defy any of these financial wizards to actually DO something
I bet I win both.
Personally, I feel the rich should pay all the Taxes. They are the ones responsible for removing the revenue producing jobs from our nation in the first place. Let them reap the rewards of Outsourcing, and Union Busting.
It's not like we haven't told them this was the eventual outcome of their greed.
~ John Kenneth Galbraith
The end goal should be fair and proper distribution of wealth, based on real contribution to society. Tax rates are not a goal; they are a tool for managing such wealth distribution.
Given the unfair distribution, the supper rich should be taxed much higher and the poor should not be taxed at all. The tax rate should can be adjusted to meet the goals, and the many loopholes availble only for the very wealthy should be done away with.
Again, taxes are a TOOL. Fair distribution is the GOAL.
And no, I am not a socialist. I just don’t think that one human should earn 100 million while another hard working person earns $20,000. Why should one person and up with what 5000 people earn, this is just wrong. It is cold evil greed when the supper rich want the poor to pay the same rate.
Have they no patriotism?
Guess not.
A few percentage points more or less does not make a difference to rich folks.
Returning to PRe Bush rates is a priority.
Defunding the govt and blocking all needed measures is all part of the GOP strategy.
MOST of the deficit caused by BUSH era mismanagement.
RICH pay less on cap gains and loophole rates.
All that stuff should be eliminated.
Another co based on usury.
Cutting up my AMEX card today.
They work hard and still have an income too low to be taxed!
However, we all pay plenty of taxes....from gas taxes to sales taxes.
It would be NICE to have lots of money and security.....but some of us ordinary lower class Americans have some things most of the rich lack.
Most of us have a heart and a soul.
We have empathy for others and a willingness to share the good and bad times.
Most of us are NOT super selfish, self-centered, arrogant, and entitled.
We understand that sharing things (through taxes) makes for a stronger America.
If there are large middle and working classes then the rich also have it better due to having a strong and prosperous country to live in.
More money would be nice....but I do NOT want to be like most of the rich.
They are NOT people I admire as worthwhile humans except maybe in the financial sense.
You make a mistake or a deposit doesn't clear before you pay a bill and the bank charges you $35. Cancel a cellphone before the contract is up costs perhaps $200. DSL doesn't work very well, but you still have to pay high rates. Change fee for a flight: $150. Tired, just tired. It's such a big percentage of our income at the middle level and below versus people in the top tiers of income.
Thank you.
I will be adding your article to my list of resource and rebuttal links.