On Taxing the Rich:

AOC’s Met Gala dress moment shares a bit in common with another memeable dress. A hundred years ago (read: 2015) the internet was divided over whether a dress, photographed in a shop, was blue and black or white and gold. We found out later that the dress was indeed blue and black, but it remained puzzling why so many thought it was white and gold. Turns out, much like AOC's “Tax the Rich” dress, one’s perception of the dress in the shop said a lot more about that person than it did about the garment. 

A couple years after “The Dress” was a thing, researchers found a compelling theory explaining why people were seeing different colors. Whether you saw blue and black or white and gold was dependent on whether you are exposed to more natural light or more artificial light during the normal course of your day. Because the photo of the dress did not make it clear whether it was taken inside or outside, people’s brains automatically filled in that information. And when it comes to filling in the blanks, our brains tend to go with what makes us most comfortable. 

You can easily predict a person’s reaction to AOC’s “Tax The Rich”  dress by knowing what kind of political opinion they typically consume. People on the right saw the dress as hypocritical rather than bravely stating truth to power. After all, she was still attending an event with a $30,000 ticket price. Liberals in the middle saw her dress as a courageous act of truth-telling. By wearing such a politically charged statement to a party meant to celebrate the extravagant excesses of art, AOC was starting a conversation and bringing awareness to an issue that needs to be addressed. Some leftists saw the dress as hollow virtue signaling, masking the reality that AOC and The Squad have done little with the power they possess and have become just as beholden to the capitalist hegemony as those they claim to oppose.

By the way, it was the late sleeping, artificial light-loving, night owls who correctly identified “The Dress” as blue and black. However, no matter what colors one saw, there was a central fact that everyone agreed on: We all were looking at a dress. No one needed to question the purpose of the garment. It was obviously meant to be worn. Likewise, no matter what you think of the morality or efficacy of taxing the rich, most people on the left, right, and center agree that the intended purpose of taxing the rich is to redistribute resources to the poor and working classes. Taxing the rich is the answer to the question that every liberal and progressive gets when attempting to deliver the meagrest bit of material aid to those at the bottom of the totem pole. 

How are you gonna pay for it?

It’s the question that plagued Bernie Sanders throughout both of his presidential primary campaigns. Even though he and his team had presented plans of tax increases and military spending cuts to pay for all of his redistributive policies, including his signature Medicare for All. But what if we’ve all been looking at the dress the wrong way? What if taxing the rich isn’t a necessary precursor to redistribution? In fact, what if it’s a bad way to achieve the redistributive goals we so desperately need?

I don’t contend that we shouldn’t be taxing the rich more. We should. It’s become almost cliche to say that school teachers and secretaries shouldn’t be paying a higher percentage of their income in taxes than people at the top 1%, but it’s still a maddening state of affairs and we need to change it. However, viewing taxation of the wealthy as a path toward providing healthcare, housing, and other necessities on a universal basis might be more of a hindrance than a help. It seems simple: If we need money to pay for the needs of the many then we take from the few who have more than they can ever hope to spend. But in reality, there are political and logistical issues with this approach that progressives need to treat more seriously.

Politically, raising taxes is not the third rail it used to be. Polling shows clear majorities support raising taxes on the wealthy as well as instituting a wealth tax. We’ve come a long way since Republicans were enraging voters with talk of a death tax on inheritances. However, while it may not be a toxic proposition to voters, it's not an animating one either. People believe that economic inequality is a problem, but they don’t believe that it's a very pressing one. Which is really fucking frustrating. In a poll taken right before last year's Democratic primaries, Pew Research found that 61% of all adults think that there is too much economic inequality in the country, but only 43% believe addressing it should be a top priority for the government. Gallup data paints an even more dispiriting picture, with only 18% of Americans seeing the economy as the most pressing issue in the country and only about 1-3% of those believing that the gap between rich and poor is the key economic issue. 

What we’re seeing here is the result of making the problem of inequality a moral argument. For progressives, the wealthy are able to accumulate their riches because of the social infrastructure to which we all contribute. Therefore it is moral and fair that the wealthy should give back. For conservatives, the wealthy have earned their fortunes through hard work, sacrifice, and other positive personal attributes, and it’s immoral and unfair for the federal government to take what they have earned and give it to those who aren’t as productive. Set aside any arguments you may have against either one or both of these propositions, the fact remains that they are based on one's subjective view of fairness. Decades of evidence that trickle-down economics doesn’t work forced conservatives to subtly make the tax argument  a moral one rather than an objective economic analysis. And liberals were happy to play along because their favorite thing to do is argue on conservative terms. 

This moral subjectivity surrounding taxes is what allows the right and the center to continue framing tax increases as a political non-starter even though polling shows otherwise. And without congressional support for tax increases, there is no way to guarantee that they can be a stable funding source for redistributive programs. People’s perceptions of economic inequality are unsurprisingly tied to the health of the economy. In a strong economy with decent wages and employment, people are less likely to be concerned by the gap between rich and poor. And thus, they are less likely to see tax increases on the wealthy as a necessity.  A depressing number of people still believe that the American Dream is attainable or that they are on track to becoming millionaires sometime in the hazy future. Accordingly, this shapes their views on taxing the rich. What’s more interesting is that when looking at the issues that Americans do see as most important, things like the environment, healthcare, pandemic response, and leadership (whatever that means), it’s evident that most Americans don’t see those problems as second order effects of the outsized influence the wealthy have on our society. 

But this is all a matter of politics. It remains possible that a charismatic leftist politician could overcome the rhetoric of resistance to tax increases on the wealthy and convince a sizable majority of the public that they are the first and most important step to addressing downstream issues. Such a politician could, in theory, inspire mass electoral action to replace members of congress resistant to substantial tax increases with those who are willing to make it happen. However, even if AOC or some other Squad-adjacent politico were able to gain that sort of mass appeal, then there are still some important logistical issues to consider. 

Many progressives, including Elizabeth Warren, favor a wealth tax, meaning a tax on the accumulated wealth held by the ultra-wealthy. This isn’t a new idea, nor is it an untested one. In the ’90s, 12 European OECD countries instituted some form of a wealth tax. Over the years, most of those countries repealed those taxes or issued massive exemptions. Only 6 European countries still have wealth tax laws on the books and only three of these have what one would consider a true tax on wealth. It would be reasonable to believe that it was simply a matter of neoliberal corporate capture why most of those governments repealed their wealth tax laws. The truth is that the logistical hurdles in implementing a wealth tax all but negated the revenue raised by them. 

It’s easy to tax currency. A million dollars is worth a million dollars and calculating 2% of that to tax away is as simple as grabbing a calculator. However, the ultra-wealthy don’t hold most of their wealth as currency. They hold wealth as valuable assets like shares in a business, expensive artwork, or a really big boat. It’s harder to put a specific monetary value on those kinds of assets and it requires a massive and expensive bureaucracy to even attempt it. While I’m not typically swayed by neoliberal economic arguments, a wealth tax could, in theory, function as a 100% tax on investment income if the rate of return is lower than the wealth tax rate. There would need to be exemptions to keep business investment profitable.

And it’s not hard to imagine other exemptions getting carved out in the process of creating a wealth tax in America. There would be haggling over where to place the taxable threshold and what kind of assets would be considered taxable wealth. Does the federal government decide what non-currency assets are worth, or is there a third-party market assessment? Would we allow individuals to self-report? We know that the wealthy are extremely skilled at hiding their income from the IRS, it stands to reason they would be equally proficient at hiding their wealth. At the end of the day, a wealth tax may only generate enough revenue to cover the costs of administering a wealth tax. 

Oh, and it may be unconstitutional. 

The reason why there is so much focus on a wealth tax as opposed to simply raising the federal income tax on high earners is that most wealthy people don’t really earn that much money through wages. Jeff Bezos was paid a base salary of $81,840 from Amazon for the entire time he ran the company. For most Americans, that money would be life-changing, but it’s only the tiniest drop in the bucket that holds Bezos’s total income. Most of his income comes from his ownership of Amazon stock and other revenue streams. We learned all about how CEO’s can get their bag through stock options and securities during the 2008 bank bailouts. Unless the capital gains rate is brought in line with the nominal salaried income rate, raising the income tax on the top earners wouldn’t have a meaningful redistributive effect on the wealth of the super-rich. 

The capital gains rate should be raised. But even if it were raised to the point that we were able to claw back half of the wealth owned by every person in the top 1%, it would still leave them with immense wealth relative to everyone else and the ability to exercise undue influence on the economy and the political process. As we learned with the Trump administration, all it takes is one election to undo any and all positive developments in taxation on the rich. 

There is an ontological problem with taxing the rich to pay for social programs and other things we desperately need. It’s a finite resource. There’s only so much we can tax before it becomes untenable to all but the most pot-committed to a socialist state. Taxing the rich is popular now, but what happens when it becomes unpopular again. Do we stop providing free healthcare? Do we stop investing in green infrastructure and the elimination of fossil fuels? Do we cut the number of good-paying federal jobs? 

We actually know exactly what would happen because it’s what happened to the New Deal and the Great Society. As flawed (read: racist) as those social projects were, they helped pull millions out of poverty and created a much more egalitarian balance of wealth (for white people) than existed during the pre-Depression Gilded Age. As neoliberalism pulled itself from the dank swamp of ideas to keep capitalism going past its expiration date, its heralds were able to demonize taxes and tie them to the racial resentments bubbling during the civil rights era. Without the revenue from taxes, government spending was cut back. Not just from social programs but from public projects as well. Financed credit rushed in to fill the gap left by government spending, and we’ve experienced the pleasure of a cyclical boom and bust economy with widening inequality ever since. 

The problem with taxing the rich isn’t that voters hate tax increases or that the rich will evade them by fleeing to another country. The problem is that we are still talking about taxes all wrong. If we think of taxes as a mechanism to make the wealthy contribute to the needs of the precarious working class then we will always be at the mercy of the wealthy to make those contributions. If our collective ability to redistribute resources is dependent on the largess of the extremely wealthy, then we will always need for there to be an extremely wealthy class of people that we can tax. Which kind of defeats the purpose of reducing inequality. 

We tend to focus on taxing the rich (or eating them) because as humans we are conditioned to seek out someone to blame for our misfortune. As much as progressives and leftists talk about systems and capitalist superstructures, in aggregate, we are still far too focused on seeking retribution for our social and material alienations from individuals. 

Donald Trump was never an actual person to his legion of fans and voters. He was a human meme, a personification of all the resentment and rage they had boiling inside them. He was an avatar for their offensive against a culture that seemed to want to replace them as the privileged. “The rich” serve a similar function for the broadly defined Left. 

“The rich” are an abstraction of the moral failing baked into the American economy. We can see them, we can identify them as similar to us (in that they possess similarly designed meat sacks), and we can resent them for living in a manner that is impossibly beyond our grasp. And so we look for solutions to our social and material problems that revolve around taking what they almost certainly don’t deserve. But I would contend that “deserve” has little to do with what we should be trying to accomplish in terms of redistribution. We can’t wait for a federal government that is willing and able to pull a McKensie Scott and take half of Jeff Bezos’s money to invest in green jobs and research in alternatives to fossil fuel. Likewise, how many people are going to die today for lack of access to healthcare, while we ponder what is a fair consumption tax on limos to pay for Medicare for All.  

And yes this is an MMT, money printer go brrr argument, but MMT is gaining popularity precisely because it’s trying to address a serious question about the logistics of building a sustainable and equitable society. The purpose of taxes is to remove currency from the market to control for inflation and to give the dollar inherent value. Using them as a mechanism for redistribution has proven to be a flawed proposition. 

That the top 1% controls massive amounts of surplus wealth is a problem, but the bigger problem is the means through which they were able to attain that surplus. I’m not saying that the super-rich should go unpunished for rigging our economy to their benefit, but instead of putting our efforts behind taking what they’ve got, we should be trying to limit their ability to get it. The kind of wealth that AOC’s dress wants to tax is built on exploitation. Having a public standard of guaranteed healthcare, housing, and education, provided to everyone regardless of their financial standing is how we remove the ability for the super-wealthy to exploit the precarity of the poor and working class. 

Again, I want to be clear. This is not an argument against raising marginal tax rates on the wealthy or raising the cap on the estate tax or any other mechanism for taking currency out of the hands of the wealthy. This isn’t even an argument against a wealth tax. If Senator Warren can come up with a logistically sound and constitutionally defensible way to do it, then do you boo. When it is necessary to mitigate inflation risk by taxing money out of the economy, then by all means the wealthy should have to sacrifice a bit more than those just getting by. It’s a logical and a sensible way to reduce inequality. But it’s not the only, nor the most effective, way to do so. We need to stop making villains out of individual rich douchebags (even as they so enthusiastically court vilification) and start focusing our attention on the mechanisms of accumulation and exploitation that have created our unequal society. 

I guess in the end what I’m saying is that I told you that the dress was blue and black and if you had listened to me then, we would have never elected Trump. 

Solidarity forever.