THE BLOG
11/09/2012 02:14 pm ET Updated Jan 08, 2013

Good Rich, Bad Rich

The rich are mostly as replaceable as you or I. Keeping that in mind can help kill a key logical error that weakens the country. Speaker Boehner and his supporters love to say the rich deserve their success because they are strong. So surely that should mean the rich are strong enough to not need special treatment.

To be clear, I am not remotely against the rich: It would be great if many more were rich. But to simplify for the sake of a useful argument, we need to distinguish at least two kinds of rich: the good in-it-together rich and the bad in-it-only-for-themselves rich. The good rich are strong enough to shoulder their share of the costs of running the country and responsible enough to succeed without harming their communities. The bad rich have no such qualms; they seek to exploit every situation ruthlessly, regardless of the costs to others, and try to avoid paying for the infrastructure their success is built on. 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 economic insecurity.

Taxes are an easy litmus test for which type of rich you're dealing with. The good rich are like Warren Buffet who sees no reason why he should pay a lower total tax rate than his secretary. Meanwhile the bad rich lobby for legal fig leaf loopholes to lower their taxes. Mitt Romney paid a tax rate of less than 15% mostly due to the "carried interest" loophole, which is only available to private-equity managers. It lets Romney classify his pension income as capital gains, which you can't do, but he and his private-equity pals can.

The Wall Street Journal quoted an expert on what some private-equity titans think about their loophole:

"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...and millions of Americans will lose their jobs because we won't...turn around their companies."

If that's the worst threat they can wield to extort special treatment, we needn't worry. These bad rich are replaceable. We should have greater faith in the entrepreneurial spirit of Americans than they do. And we should welcome these lazier rich choosing to work less, because they aren't strong enough to pay taxes at the same rates the rest of us do on our so-called ordinary income. Other hungrier, harder-working, smarter soon to be rich folks will step up to turn those companies around, even if they only make $6.5 million. These are precisely the kind of good rich we need more of. Their success strengthens the nation, while success that depends on special tax treatment weakens us.

Speaker Boehner seeks to serve the bad rich in upcoming tax negotiations. He insists increases in top income-tax rates will lower economic growth. But his blind free-market faith in that simplistic idea is flatly contradicted by the data. Growth was higher under Clinton and Reagan, when top tax rates were higher, and there was less growth under George W. Bush, who cut top tax rates. Recall that Reagan actually raised the tax rate on capital gains to match that on ordinary income.

Perhaps Boehner really believes today's rich are weaker than those who built the booming economies of the past.

Let me end by repeating, we need more good rich, and as many as we can get. It's time we used our tax rules to encourage the bad rich to get themselves replaced by the better for us all good rich.

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