Taxing the New Elite

Chrystia Freeland’s profile slash condemnation of “the new global elite” is a ton of fun. This is the only part I have much to say about in terms of substantive policy journalism:

What is more striking is the degree to which even former Obama supporters in the financial industry have turned against the president and his party. A Wall Street investor who is a passionate Democrat recounted to me his bitter exchange with a Democratic leader in Congress who is involved in the tax-reform effort. “Screw you,” he told the lawmaker. “Even if you change the legislation, the government won’t get a single penny more from me in taxes. I’ll put my money into my foundation and spend it on good causes. My money isn’t going to be wasted in your deficit sinkhole.”

What’s telling here is the dissonance. On the one hand, the princes of Wall Street are upset at the idea of needing to pay higher taxes (“screw you!”) while on the other hand they insist it won’t make a difference (“the government won’t get a single penny more from me in taxes.”) That doesn’t really make a ton of sense.

What it comes down to is that people do, in fact, have the ability to shelter their money from taxation by donating it to charity. The prince in question wants to persuade the Democrat that there’s no point in raising his taxes (“the government won’t get a single penny”) because the cash will all flow to charity instead. But the prince’s preference is to keep the low taxes and use his money to finance lavish consumption rather than charitable endeavors. Hence, screw you. In the prince’s mental model of congress, members are just greedy bastards seeking to collect as much revenue as possible. But the wise member recognizes that he should by no means be indifferent between the option of the prince buying himself a private jet and the prince financing the expansion of a charter school network or the renovation of an art museum. The consumption of the super-wealthy has an extremely low marginal value, and almost anything else is a socially superior use of resources.

Hence the case for progressive taxation, especially if it can be made progressive taxation of consumption. If what the super-rich come away from is a lot of buildings with their names on it, that’s fine by me. The problem is when it all goes toward positional competition and conspicuous consumption.