Wealth and Taxes

We all know that there is a high and increasing inequality of wealth in this country. It is a truism here that the rich get richer and the poor get poorer, but now also the middle class is getting poorer as well. As a result, there is much talk about “income redistribution,” though the term is more frequent among conservatives, who use it to accuse the liberals of being socialists who want to confiscate the assets of the rich and hand it over to the poor. As conservatives see it, this is taking legitimately earned money from those who actually did the earning and giving it, no strings attached, to those who are unwilling to work. They imply that the lazy are jealous of their betters.

The rhetoric of the liberals does nothing to alleviate the conservatives’ anxiety, although it can fairly be said that their anxiety is more histrionic than real. Given how cozy both conservative and liberal politicians are with the people who are after all their donors, there is little danger that the wealthy will have their assets seized.

In fact, I don’t really believe that there is any widespread resentment of wealth per se in this country, probably because most Americans still believe that, with a little luck and a lot of dedication, they too can one day be rich. So far as I can tell, making more money is a key component of most people’s American dream.

So if there is little resentment of wealth, what is resented? An answer may be in Alexis de Tocqueville’s book on the French revolution, “The Ancien Regime and the Revolution,” published in 1856. De Tocqueville examines the economic and financial situation of France prior to the Revolution and discovers that one of the more important factors was not wealth per se, particularly of the aristocracy (many of whom in fact had little money), but what he calls “inequality of taxation.” The aristocrats had political clout, as did the capitalist class (the bourgeoisie), and they used that clout to gain tax reductions and exemptions for themselves; the petit bourgeoisie and the peasants had no such clout, so the burden of taxation was shifted to them. France had a punitively regressive tax system, not a punitively progressive one.

As Warren Buffett has so memorably reminded us when he declared that his secretary was taxed at a higher rate than he was, the American tax system has also become regressive, and for the same reasons as in pre-revolutionary France: those with political clout have gained reductions and exemptions for themselves at the expense of everyone else. Note that Buffett was not complaining about the disparity of income between himself and his secretary; I doubt that he sees anything at all wrong with that. He was complaining about the inequality of taxation.

People are not very worked up about the wealthy for being wealthy. Indeed, there is a good deal of admiration for the rich, especially for those who have created their wealth by producing services and products of use and desirability for everyone, such as Steve Jobs, or who entertain us, such as Tom Hanks. Getting rich is a laudable goal in America, and those who have gotten rich are often idolized. The problem is inequality of taxation. Americans believe that everyone should do their fair share, and when they see wealthy individuals and hugely profitable corporations not doing their fair share for the country that has so richly rewarded them, Americans get resentful.

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