How to Tax the Rich

Monday, January 31st, 2011

The way our political system is designed, Scott Adams (Dilbert) says, politicians are not free to float bad ideas — or even to support good ideas that fall too far from the norm.

TV writers, on the other hand, routinely present the bad idea version of something to their team, to spur further thinking toward a good idea version.

With that in mind, he presents his bad ideas for how to tax the rich:

Time. It’s useful to keep in mind how the rich are different. When you are poor, you are willing to trade your time to earn money. When you are rich, you trade your money to get more time. For example, the rich hire people to clean their homes, and they don’t waste time shopping for bargains. In business school I learned that when people have different preferences, you can usually find a way to engineer a deal.

Suppose we change the tax code so that in return for higher taxes on the rich, we figure out a way to give the rich some form of extra time. The bad version is that anyone who pays taxes at a rate above some set amount gets to use the car pool lane without a passenger. Or perhaps the rich are allowed to park in handicapped-only spaces.

Ridiculous, you cry! Remember, this is the bad version. And if the rich are only a tiny percentage of the population, they would have almost no impact on the traffic in car pool lanes or the availability of parking spaces for the handicapped. You wouldn’t even notice the difference.

You could imagine a host of ways the government could trade time for money. Suppose all government agencies had a mandate to handle the affairs of the rich before everyone else. You wouldn’t even notice that your wait at the Department of Motor Vehicles was 2% longer.

As a bonus, what happens to the economy when the people who are most skilled at making money suddenly have extra time? My bet is that they stimulate the economy by spending more or by earning more.

Gratitude. Imagine that the government arranges to provide genuine person-to-person gratitude to the rich in exchange for higher tax rates. Suppose (bad idea alert) the government makes it a condition that anyone applying for social services has to write a personal thank-you note to a nearby rich person who, according to a central database, hasn’t lately received one. Gratitude goes a long way. It’s easy to hate the generic overspending of the government. It’s harder to begrudge medical care to someone who thanks you personally. It’s a bad idea, I know. Don’t judge it. Just let it nudge your imagination to someplace better.

Incentives. Another approach, also a bad idea, might be to treat the rich more like venture capitalists than sources of free money. Suppose the tax code is redesigned so that the rich only pay taxes to fund social services, such as health care and social security. This gives the rich an incentive to find ways to reduce the need for those services, which would in turn keep their taxes under control. Perhaps you’d see an explosion of private investment in technologies that make it less expensive to provide health care. You might see rapid advances in bringing down the cost of housing for seniors.

Meanwhile, the middle class would be in charge of funding the military. That feels right. The country generally doesn’t go to war unless the middle-class majority is on board.

Shared Pain. Happiness is a relative thing. That’s how humans are wired. And we’re just screwed up enough to feel comfort when our pain is shared. So how can we make the overtaxed rich feel as if the rest of society is feeling a little extra pain?

I doubt that the rich will agree to higher taxes until some serious budget cutting is happening at the same time. That makes the sacrifice seem shared. The rich will feel unfairly singled out unless everyone is taking a hit. And budget cuts make the government seem better managed. That matters.

The bad idea here is to change the debate from arguing about which programs and how much to cut, and instead to do what the private sector has been doing for decades: Pull a random yet round number out of your ear, let’s say a 10% cut, just for argument’s sake, and apply it across the board. No exceptions. Everything from the military to welfare to federal pensions to government salaries would take the same hit. Managers in the private sector have been handling budget cuts this way for years. They know that their subordinates are all professional liars, so there is no reliable information for making cuts in a more reasoned way. They also know that any project can get by with 10% less money if there is no alternative.

Power. Everyone loves power. I’m guessing that the rich like it more than most people, on average. Another bad idea is to give the rich two votes apiece in any election. That’s double the power of other citizens. But don’t worry that it will distort election results. There aren’t that many rich people, and they are somewhat divided in their opinions, just like the rest of the world. And realistically, is the candidate who gets 51% of the vote always better than the one who gets only 49%? That’s a risk I’ll take.

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