Tax-Us or Texas

Tax-Us or Texas

The World Economic Forum at Davos started fifty-three years ago but has really gained momentum and notoriety among globalists in the last decade. I have never attended (when I was in my corporate prime and realistically a candidate, Davos was not yet a must-do) and now I doubt I ever will go (now that I am a mere bystander and observer of the world and decidedly not a mover and shaker), but I am very interested to learn what comes out of it every year from those more important to the world’s future than I. Kim just picked up on something I missed and shared an article from Davos that interests me greatly. Apparently over 250 billionaires (of 3,200 that exist globally), led by the likes of a Rockefeller and a Disney, have written an open letter to the Forum saying, “If elected representatives of the world’s leading economies do not take steps to address the dramatic rise of economic inequality, the consequences will continue to be catastrophic.” The letter then goes on to say, “Our request is simple: we ask you to tax us, the very richest in society. This will not fundamentally alter our standard of living, nor deprive our children, nor harm our nations’ economic growth. But it will turn extreme and unproductive private wealth into an investment for our common democratic future.” This is the purest form of self-interest I can imagine, as crazy as that may seem.

I have been saying for a long time to my wealthiest friends that it is in their long-term best interest to see the economic playing field get leveled. There are many reasons for this and none of them needs to be about do-good thinking. As much as I feel compassion for those less fortunate in the world than I, I am pragmatic enough to know that many people do not have the empathetic nature to feel the same way towards the broadest definition of mankind. Most people like to joke that that they love humanity and that its just people that they don’t like, but the reality is actually most often the exact opposite. Most people I know, when confronted personally by severe human distress, try to help in some way that they can. Their compassion gets ignited by the in-your-face version of human need. It even is more so when you are approached and literally touched in person versus entreated through a car window by a homeless person. Our humanity may be shielded, but when exposed, it is mostly there inside of us. But sit back in your wing chair at your club with a scotch mist and you can pontificate all you want about the surplus population in the best of Dickensian fashion. I want to literally shake my conservative friends into realization of what is good for them but what they refuse to acknowledge because their vision is obstructed by their wallets in front of their faces.

The last time we had this much wealth disparity was is the JP Morgan, Carnegie, Vanderbilt, and Rockefeller American Gilded Age of the late 19th Century. That was, of course, denominated in millions rather than billions. Look where that led. Some would say that is what spurred the Second Industrial Revolution, but few historians would disagree that it also led to the unionization movement and eventually to the excesses of the Roaring Twenties, Prohibition and then the collapse of the Great Depression. The notion of a chicken in every pot and a car in every driveway was the cry for help, less from the recipients and more from the businesspeople who understood that the consumer economy is ultimately the only thing that drives overall economic prosperity. The end consumer is the final chapter of any industrial policy other than a war economy and intelligent economists and businesspeople understand that. And consumers must have the wherewithal to spend for a consumer economy to carry on, much less to prosper.

I have long said that we must all think broadly about how unless we level the playing field and give everyone a stake in the economic game (even the neediest of the amnesty-seeking immigrants or refugee camp inhabitants), we are going to subject ourselves to the horrors of the two-headed Hydra of revolution or genocide, or more likely, both simultaneously. We see the dynamic in microcosm in Gaza and can only imagine the drama if that stage expanded to the broader Middle East or, worse yet, the global stage. We, as a species, cannot survive a global uprising of the impoverished and disaffected and hope to have a prosperous life for ourselves and our descendants. As compelling as that vision of the cautionary tale before us may be, it is still not what compels me the most because it is, admittedly, a dire and less likely outcome (though distinctly not a zero-probability one the way things are now going). What is far more likely is that we will wander into another version of the Great Global Depression by virtue of nobody being able to afford any of all this great stuff that we want to manufacture and sell or all these services that we want to provide but people simply cannot afford at the margin.

I’m not sure how many of the signers of the Davos open letter are driven by empathy versus driven by fear of revolution, or most likely, driven by economic pragmatism of the sort I reference. I would bet that these people are most likely the latter category because they are presenting this at a global economic forum, not at some eleemosynary event or even a political event. Even if they are all bleeding hearts on that signatory list, they are undoubtedly astute enough to have had the economic light bulb go off in their head that says that both giving impoverished people something to lose and giving them an ability to earn enough of the pie to put it back to work through consumer purchases that drive the economy and thereby propel the wealth creation of those very signatories. Tax-us may not be a war cry of people who want less, but people who want more and are smart enough to know that in the words of Co-Co Chanel, less can be more.

During the Roman Empire there was a tax on wealth. This was perhaps one of the reasons for their manifest destiny in conquering foreign lands because the riches from those conquests allowed the Empire to flourish without the wealth taxes…but eventually it came back as the Empire failed to produce enough of that which belonged to Caesar (the coin of the realm used in the provinces). Other empires like that of the Mughals in India also had wealth taxes. The British introduced income taxes and in the United States during the Civil War, they found their place and went quickly from a flat rate to a progressive tax. In 1913, probably as a reaction to all that robber baron activity, the 16th Amendment was passed allowing the government to institute an income tax in whatever manner (progressiveness) they wished. By the 1960s most countries had a progressive taxation system and the U.S.. For the 20 years following WWII the highest marginal tax rate in the U.S. reached to 90% where today it sits at 37%. That is a direct result of the Reagan-led tax revolution begun in 1981 and continuing through the Trump tax reform of 2017.

For some time, Senator Elizabeth Warren has staunchly advocated for a wealth tax via her Ultra-Millionaire Tax Proposal, which would tax fortunes over $50 million at 2%. There is some evidence that progressive income taxation is a wet blanket on economic growth, and that makes some sense in terms of motivation. If you can only keep 10% of what you produce at the margin, demotivation is clearly a possibility. But a wealth tax does not suffer from the same stifling impact because it falls squarely into the “how many yachts can you waterski behind” way of thinking.

Elon Musk moved Tesla to Texas because he hated the regulatory stricture of California and because he didn’t like the high progressive state income tax. Texas has no income tax. I might add that it also has signs of a failing infrastructure. So, what’s it gonna be? Tax-us or Texas? I vote for Tax-us as I suspect 98% of the nation would. The 2% that won’t are the 1% and the next 1% that want to make it into the 1%.