Tuesday, September 15, 2009

The Rich Have It Hard, Too!

So goes this article about the recession and the very wealthy:

Observers say it is part of a far broader campaign in the wake of the Great Recession -- including curbs on bankers' pay and a rigorous global hunt for tax cheats from Switzerland to Singapore -- that is suddenly putting the world's wealthy on notice.

In the United States, taxes on the richest Americans are one option for covering the cost of offering health care to the 46 million who are uninsured. The Obama administration has vowed to press forward with its ambitious agenda without raising income taxes on families earning less than $250,000. But the president's current budget calls for a rollback of the Bush tax cuts for the richest Americans that would increase their top marginal tax rate in 2011 from 35 percent to 39.6 percent, or the same as in the Clinton era.

In India, the government has launched an effort to track down billions of dollars in "black money" -- or hidden profits of the rich. In Germany, Parliament in July passed a law requiring the affluent to provide more information on the locations of their assets. Since the economic crisis began, there have been fresh tax increases for high-earners in the Netherlands, France, Ireland, Italy, Belgium and several other countries.

Analysts say the action marks the first time since before the Reagan-Thatcher era of the 1980s -- when trickle-down economics led to decades of lower tax rates on the wealthy -- that the world's moneyed have faced this level of pressure from such a wide array of governments. It happens as cash-strapped governments -- even as the global economy begins to recover -- are scrambling for scarce sources of revenue to fund expensive stimulus packages, combat the recession and expand services to the less fortunate.

There has been "an absolutely direct correlation between taxes and the financial crisis," said Jon Terry, head of reward practices at Pricewaterhouse Coopers in London. "If there was no financial crisis, I would have been surprised if taxes would have increased at all for high-earners."

Given the gap between the rich and poor that widened globally during the excess of recent years, many see the wealthy as the fairest, most likely source for funds in hard times. In the case of tax cheats, the campaign to root them out, many argue, is long overdue.

But for some, it is beginning to feel like governments are piling on when it comes to the rich -- who, through lost real estate and stock values, have already shed untold billions.

I bolded that last paragraph for you because it is an example of two kinds of false equality: of the journalistic type where you put 'some say' into one argument and 'others say' in the next argument, and of the real type where the hardships of the rich are somehow equated with the hardships of everyone else. Or even with the hardships of the poor.

Both of those are false equalities. The journalistic one ignores the possibility that there might be actual facts over and above the statements of the two sides and that one side might in fact be correct (such as in 'some say the earth is round, others argue it is a pancake with maple syrup'). The real one ignores what it is we compare when talk about the rich and the poor as groups, and that is the fact that the rich have lots more wealth. If they don't have it, they are then called the poor, too.

My guess is that at least some of these pity-the-rich articles think of the wealthy as a group which should have the same rights and duties as any other group, say, the poor or the middle class, and that it's unfair we demand more from one group than the other groups. Note that this is NOT about the rights and duties of the rich as individual human beings which are obviously set to be equal with those of all other individual human beings. It is about the rights and duties of the wealth the rich hold, ultimately:

Thus, the mountain of money a rich family has is deemed equal in rights to the few dollars a poor family has, and each of those wealth-units should pay equally towards taxes and government fees. This is what ultimately lies behind the flat tax thinking, especially in its extreme form where the recommendation is for a flat absolute-dollar-figure tax, a poll tax. Such taxes would have to be sized to be feasible for the poorest (in order to be the same for all) and the puny tax receipts they could provide for the governments would collapse the society altogether.

Even less extreme examples of demanding wealth-blind fairness in taxes lead to similar problems. Which is to point out that a mountain of money really is not equal to a small pile of pennies and shouldn't be treated the same.

Neither are the troubles of the ueber-rich the same as the troubles of the very poor or even the middle class earners. This is because to live at all requires a certain basic lumpy (that's a technical term) expenditure of money, and one can't really go below that sum and still survive. Just think of the question whether you could still live (in terms of basic survival) if your current income was cut to one half then one quarter and so on.

Similar considerations apply to money saved and invested for retirement. If that sum was just enough two years ago, it probably isn't enough today and retirement must be deferred. But someone who loses eight billion out of a sixteen-billion investment can still retire, you know, and quite comfortably.

So no, all piles of money are not created equal. The size of those piles does matter, because of that initial fairly fixed amount we all need to survive. And struggling for survival is not the same as struggling to adjust to a few more billions less.