Introduction
At the 2021 Met Gala, Alexandria Ocasio-Cortez sparked controversy by wearing a “Tax the Rich” dress. Afterward, AOC championed the race of the dress designer and accused her critics of being sexist, while her critics pointed to the irony of such a message at a $30,000-a-ticket event designed to support the interests of the ultra-rich. But these points are largely irrelevant when considering if taxes on the rich should be increased. This is unfortunately also the level of discourse present in the book Tax the Rich! How Lies, Loopholes, and Lobbyists Make the Rich Even Richer. Anyone reading this book to better understand the arguments for and against raising taxes on the rich will be disappointed, as it largely provides neither. This review critiques the book for selectively omitting information, ignoring incentivization effects, and appealing to emotion by villainizing the rich. These critiques provide a better understanding of the legitimate arguments for and against raising taxes on the rich and point to potential hypocrisy in groups such as the Patriotic Millionaires.
Missing Information
Given the singular focus of the book to increase taxes on the rich, it is a glaring omission to never mention how much the rich pay in taxes. The authors likely reasoned that mentioning that the top 1% of wage earners pay 40% of all federal income taxes would not help advance their narrative that the rich do not pay their fair share. Even worse than omitting this fact they deceptively imply that the opposite is true. They claim that “those with little to spare are responsible for most of the investment, while those with the most put up the equivalent of nothing.”
Another omission is how the Tax Cut and Jobs Act of 2017—which is heavily criticized throughout the book—resulted in the rich paying an even higher share of federal income taxes. The book also neglected to mention that the 2017 legislation capped the state and local tax (SALT) deduction, a significant tax deduction for the rich. Knowing the facts about who shoulders the overwhelming tax burden casts serious doubt on the authors’ claims that the rich secretly control tax policy and have rigged the system to their advantage. If the rich are setting tax policy, they are either incredibly generous or incredibly inept.
Finally, the authors make numerous assertions as to how current high levels of wealth inequality have tended to destabilize the United States. But no evidence is ever provided to support the claim. To the contrary, one could argue that the United States has remained remarkably steady even as income and wealth inequality has steadily risen over the last forty years.
Hypocrisy?
One of the authors, Morris Pearl, is the chair of the Patriotic Millionaires, a group of ultra-rich Americans who advocate for raising taxes on the rich. But members find themselves in a difficult position. If they truly believe that they should be paying a higher percentage of their income in federal income taxes, they could simply elect to do so, as the federal government accepts donations. The fact that they do not calls into question the sincerity of their stated position. After all, if their “fair share” is far more than they currently pay, wouldn’t it be morally wrong to pay less than what is fair? Note that these millionaires acknowledge that the rich can hire accountants to avoid paying higher rates of taxes, so if they do so, they are not complying with their own sense of paying their fair share.
This contradiction is so blatant that the Patriotic Millionaires released a statement attempting to defend themselves. It essentially maintains that if they were to pay the taxes they say they want to pay, it would not make a “massive” difference. This is inconsistent with the group’s claims elsewhere that “massive” changes are not required because even just “a little more equal will mean a lot more stable and ultimately more prosperous.” Furthermore, there are currently over 200 Patriotic Millionaires: voluntary donations from this group at a 90% rate, along with wealth taxes, would likely amount to more than $100 million per year. While this is not “massive” relative to total tax revenues of $4.05 trillion in 2021, it might act to decrease wealth inequality somewhat over time and provide help to more disadvantaged Americans—the very people the Patriotic Millionaires claim should receive money from the rich.
They provide the analogy that “[i]f you thought that the education system in your town was awful, it would be absurd to expect you to quit your job and become a teacher to fix it.” But a far more analogous hypothetical would be a group of parents advocating for all parents to donate one afternoon a year to help out at their children’s school, while concurrently refusing to donate their own time arguing that it would not make enough of a difference unless everyone did it. A real-world analogy is the Giving Pledge made famous by Bill Gates and Warren Buffett, whereby the ultra-rich pledge to give away at least half of their wealth. If the members of the Giving Pledge instead advocated for legislation to force the ultra-rich to give away half of their wealth, while still refusing to give away half of their own wealth, people would quickly point out the hypocrisy.
These failures to act on their own proposals suggests that these multi-millionaires want to be perceived as advocates fighting against their own interests, even while they continue to garner more wealth. For example, multi-billionaire Eli Broad publicly states his support for raising his taxes, while secretly funneling $1 million to fight tax increases on the rich.
Villainize the Rich
The authors generally villainize the rich. They describe the rich as having “obnoxious amounts of money.” Rather than making money through hard work, the rich allegedly make “lazy money” by “sipping cocktails and pushing a button on an E*TRADE account.” And the investments of the rich are depicted unrealistically, making the rich appear to possess an unfair advantage. For example, a scenario in which a real estate developer quickly turns a $10 million purchase into $120 million without incurring any related costs is presented as routine. These examples are overbroad, since at least some sources argue that the rich generally require years to accumulate wealth, rarely inherit their wealth, and work long hours.
The rich are not only depicted as greedy and selfish but as possessing nefarious motives, seeking not only to gain wealth for themselves but to revel in the oppression of others. The authors depict rich people bragging about how “[m]aking money’s even more of a kick when no one else is.”
The belief that rich business owners create jobs is inconsistent with their characterization as being evil. To avoid any ambiguity, the authors go so far as to claim that entrepreneurs do not create jobs. They explain, “Yes, businesspeople start companies and hire employees, but those jobs … exist because of consumer demand.” Therefore, “customers [are] the real job creators.” While this claim has some truth behind it, the distinction is more of a semantic ruse than illustrative of economic reality and is falsified by the following consideration. An entrepreneur that opens a business selling a product with zero market demand will temporarily create jobs. But no amount of market demand will create a single job if an entrepreneur does not attempt to satisfy that demand. In other words, an entrepreneur can create jobs without market demand, while market demand cannot create jobs without an entrepreneur.
Despite the allegations that the rich are “[t]he people screwing everything up,” the rich are desirable members of society. They give more to charity in both absolute and relative terms. They pay over 150 times the federal income taxes of the middle class. They are less likely to commit property crimes and violent crimes. They engage in high levels of volunteering. And yes, they create jobs.
Incentives Matter
The authors largely ignore how tax policy incentivizes behavior. Therefore, the consequences of the tax policies promoted are largely ignored. Even worse, instead of ignoring incentives, the authors sometimes explicitly claim the incentives do not exist. The most blatant example of this comes in the authors’ argument for raising capital gains taxes from 20% to 90%. The authors claim that this would have no impact on whether rich people would take their money out of the stock market: “rich people are going to invest their money regardless of the tax rate.” The authors arrive at this conclusion by incorrectly viewing rich people as faced with a binary option. They can either hold on to their money (earning no additional money) or invest it (in which case they at least get some money after taxes). No matter how high the tax rate is on capital gains, “it’s still better than making nothing!”
This of course ignores a third option, which is to simply spend the money. And with a 90% capital gains tax rate, this is likely what the rich would do. A rich person considering what to do with $1 million could invest in the stock market, where he might make an 8% annual return of $80,000. After paying the investment fees and a 90% capital gains tax, he may end up with a net gain of $6,000. And yes, this is $6,000 more than he would have by not investing the $1 million. But why incur the risk and go through the hassle of investing for a potential $6,000 return when you could instead go on a $1 million vacation? This third option is even more likely when one considers the authors’ support for a 3% wealth tax. Here, even after a lucrative 8% return, the rich person would experience a net loss of $24,000 after capital gains taxes and the first year’s wealth tax.
Of course, even this argument would likely not cause the Patriotic Millionaires difficulties. By spending, they would likely argue, the rich would be supporting businesses and workers, while reducing their own wealth. They likely do not see the value of encouraging savings, which has been an argument for reducing tax rates on capital gains for some time.
Valid Points
While this review focuses on the numerous areas of critique, the book is not without merit. The authors argue against the carried-interest loophole, which allows fund managers to characterize their earned income from work as a capital gain and therefore pay a lower tax rate than paid by other wage-earners. The authors also explain the problems with “opportunity zones,” which offer significant tax cuts for the rich but negligible benefits to the poor communities they are purportedly designed to help.
The best argument presented in favor of the wealth tax is that, in a sense, it already exists in America in the form of property taxes. And because middle-class Americans have a disproportionate amount of their wealth in their homes, property taxes are essentially regressive wealth taxes on middle America. The authors further point out that recent cuts to the Internal Revenue Service budget are counterproductive to saving money because money spent on tax enforcement returns even more money in increased revenue.
Conclusion
This review does not argue against raising taxes: an intelligent debate can be had on that issue. The point of this review is to show the failures of the book in providing a sound argument for increasing taxes on the wealthy. The book’s omission of counterarguments, appeals to emotion by villainizing the rich, and lack of evidence in favor of the positions taken all contribute little to a healthy debate on taxes.