It’s Friday and time for a time warp. Hamilton Nolan, editor at Gawker.com is going to take us back to an era when a wall still divided Berlin:
Rich people across the Western world are anxiously watching France, where president Francois Hollande is vowing to raise the top tax rate—on earnings over $1.2 million a year—to 75 percent. Tres bien, Mr. Hollande. The problem with this otherwise fine idea is that the very rich can simply pack up and move to a more accommodating Western nation with lower taxes and less concern for income inequality, like America.
How about that. It’s a problem in Hamilton Nolan’s world that people can move between countries. Back where I grew up we cherished the ability to travel across national borders, because when we went just a wee bit to the east, we ran into an Iron Curtain. Hamilton Nolan is happy enough to never have had to encounter such a physical boundary in his own life. If he had, he would be a bit more humble about making people’s free mobility a “problem”.
There is, though, a more elegant solution to this: a maximum income. Let’s have a maximum annual income of, oh, $5 million, pegged to inflation. All income above that would be taxed at 99 percent.
So if we put that cap in place in America, how would that stop people from moving to Canada to escape that tax? What would stop, say, a business that needs top-notch executives from moving their company from Detroit, Michigan to Windsor, Ontario?
Our precious national sports stars, celebrities, and corporate executives could still be fabulously wealthy. The daydreaming poor could still have a nice big number about which to hopelessly dream.
It’s not far fetched to guess that Hamilton Nolan belongs in that last category. See, the problem is this. If you are a corporate executive, you don’t just sit on your behind and cash paychecks. You actually work. And you work a lot. I once had the privilege of meeting the chief executive officer of an international manufacturing corporation with a quarter of a million employees worldwide. He had 2.5 days off from work – per year. Christmas Day, New Year’s Eve, and half of his and his wife’s anniversary day. Every weekday he worked 7AM-7PM and 9PM-midnight and 7-5 on weekends. In other words, he put in half a work week over the weekend when most people are sleeping, watching ball games, going to barbecues and writing status updates on Facebook.
He missed almost everything his kids were involved in, and his wife had given up her career to serve as the “ground crew” for their family. Every decision he made in his capacity as CEO could affect the livelihood of 250,000 people. And their families.
I’m sure Hamilton Nolan would gladly make those sacrifices for $5 million per year as the CEO of Global Gadget, Inc., but I am also pretty dang sure that the people who have invested their retirement savings in the stock of Global Gadget, Inc. would like someone at the helm who actually knows what he is doing. They would want their company to pay a CEO enough to get top-notch talent. If they cap out at $5 million, then it is not far-fetched that some German, Canadian, Australian, Swiss or British company is going to offer another couple of million and lure the skilled, competent guy over to them.
And Global Gadget, Inc. will be stuck with Hamilton Nolan as their CEO.
Five million dollars a year. Five million! Anyone with $5 million can invest it conservatively enough to earn 5 percent a year and still be making $250K per year without lifting a finger. In other words, $5 million provides you with the means to live as a member of the one percent without ever touching the principal.
Apparently, Hamilton Nolan has been listening too much to Harry Reid. He appears to believe that the rich don’t pay a dime in taxes. Unfortunately for Mr. Nolan, the rich do pay taxes. A lot. At $5 million per year you pay 35 percent in federal income taxes on 92 percent of your income. The average tax rate you will see is 34.7 percent, which reduces your five million to $3,263,509. Then you pay state and local income taxes – let’s assume seven percent for simplicity. You are now down to $3,035,063.
Hamilton Nolan assumes that CEOs can deposit every cent of what they make into the bank and then get a five-percent return on it. Even if we assume that his return figure is reasonable (which it is not) the CEO still has to pay for his family’s food and clothes, his utility bills… he has to put money aside for retirement and the kids’ college, and he most certainly donates money to charity. (Who knows – maybe he even gives to the college Hamilton Nolan went to?) So the $3 million net-tax income that Mr. Nolan thinks he could deposit straight into the bank if he were the CEO of Global Gadget, Inc., is not really going to be $3 million.
Then, of course, there is Mr. Nolan’s attitude that CEOs should be payed a fixed, annual amount. most CEOs get paid based on the performance of their company, giving them an incentive to work harder. I realize that the concept of performance-based reward is totally alien to a liberal like Mr. Nolan, but believe me – it actually works. And it works the other way, too. If Global Gadgets, Inc. pays Mr. Nolan $5million per year regardless of what good or disastrous decisions he makes, how long does Mr. Nolan think that his company will stay in business?
Of course, Mr. Nolan’s concerns are not with the survival of the businesses that build our prosperity. His concern is that someone in Ougadougou is poor when Mitt Romney is rich. He goes on to let us all know that $5 million per year is far more…
…than anyone should be earning, in a world with so much poverty and want, but not so much that someone could consider themselves set for life. It’s a number at which the go-getting rich person is still aspirational. They hope to double or triple that salary before their earning days are done. So a hefty 75 percent tax, though completely just, will not only spook them enough to flee, but allow them to retain a modicum of dignity while doing so, at least among the more affluent segments of their peer group.
Apparently, Mr. Nolan now wants a 75-percent income tax bracket already at $1.2 million per year, just like they want in France. But he just based his entire argument for a salary cap on keeping the current tax brackets up to $5 million, and then have the IRS take 99 percent of everything above that. So now Mr. Nolan wants an effective compensation cap at 75 percent at an earnings level that includes a lot of small business owners.
Which, of course, gives those same business owners an excellent incentive not to expand their businesses, not to hire more people – and not to make enough to donate to any of the good causes that liberals always talk about.
And then it gets really fun:
I defy the slickest PR firm in America to explain to a nation of struggling, underemployed working class people with a median household income of just over $50,000 why an already-wealthy person felt the need to leave the country—taking money out of the taxpayers’ pockets in a very literal sense—rather than donate, to the common good, earnings over one hundred times the nation’s median household income.
1. See my argument about the CEO above.
2. A company that pays its CEO well will create jobs for a lot of people. It will also grow the retirement savings of those who invest in the company. The better the CEO performs, the more he gets paid; the more he strives for the millions, the more of America’s unemployed get jobs.
3. Apparently Mr. Nolan believes that everything we earn belongs to the government unless the government decides to not take it all in taxes. Unlike Mr. Nolan, I have visited countries where the economy was run according to that principle. I saw poverty, deprivation and despair at levels most Americans – Mr. Nolan presumably included – could never imagine.
Mr. Nolan needs to graduate high school – or at least spend some time as a tourist in reality.
Then he goes on to once again pretend that the wealthy don’t pay any taxes in this country:
America has provided all of the opportunity necessary for these people to earn their fortunes. That opportunity is paid for with tax dollars. The wealthy could still earn as much as they want.
No, you dim-witted sophomore. They couldn’t. You just capped their earnings at $5 million. Some people want to earn more than that. And by the way, Mr. Nolan needs to comb through some IRS income tax data and find out who is really paying the taxes in this country. About half of all income earners make no net contribution to government – and it’s not the upper half we are talking about.
It’s not that they don’t get anything for their earnings above $5 million; they get the distinct privilege of making a huge and helpful contribution to their fellow countrymen. Give them awards. Lavish them with praise. Publish the names of the highest taxpayers in laudatory newspaper columns. Allow them to bask in civic pride. But take their money. They have plenty.
Mr. Nolan evidently thinks that Global Gadgets would pay him $10 million a year as a CEO when government takes 99 cents of every dollar above $5 million. But if Global Gadgets capped out Mr. Nolan’s salary at $5 million they would save the company, well, $5 million. The federal government would not get a dime’s worth of taxes above the $1.7 million Mr. Nolan would be paying in income taxes. Government would be sitting there with less tax revenue and Global Gadgets would go bust with Mr. Nolan at the helm. All its employees would lose their jobs, have to go on welfare and stop being taxpayers.
The federal deficit would grow and Mr. Nolan would be out there, living on his $250K per year demanding even higher taxes on even lower incomes.
A maximum income … provides a very clear (and high) line at which the average American can gaze up, and contemplate just how far away someone is who might exceed it. And it puts into stark relief the fact that there is no good argument as to why anyone needs more than that, while others are suffering in poverty.
Mr. Nolan still has not explained how some poor dude living on welfare in a trailer park outside Cheyenne, Wyo., benefits from this income cap. Mr. Nolan still has not explained how colleges are more able to provide scholarships for poor kids when high-income earners cut their donations in proportion to Mr. Nolan’s reduction of their earnings. Does he seriously believe that employers are going to pay anyone a dime’s worth of salary above his income cap, just to donate the money to government?? A person who pays more in taxes in one year than Mr. Nolan will earn in a lifetime is already paying more than his fair share in taxes – and Mr. Nolan, who is presumably nowhere near the higher income brackets, is not.
In the end, Mr. Nolan flags up for what he really is. He is not misguidedly concerned about income redistribution. All he cares about is to impose his warped, totalitarian ideology on the rest of us. Not only does he want to impose an income cap, but he wants to lower it over time. Then he goes on to declare that:
This is not primarily about raising our total national tax revenue. That’s a far broader issue. This is about inequality. It’s about what type of nation we want to be—what level of inequality we are willing to tolerate in order to protect a vague and twisted notion of “freedom” that most people cannot even fully articulate, and that was created by the rich to serve themselves. This is a baby step. But it’s one that would make us, fundamentally, a better and more just country.
Mr. Nolan actually has a point. This is very much about what kind of country we want to be. Do we want to be a country that shows utter disdain for freedom and opportunity – a country where no one is allowed to perform better than anyone else; a country where government, not you and me, decide how we can live our lives? Or do we want to be a country where we let people live their lives the way they want to; where we let people succeed in building entrepreneurship; in creating jobs, putting new inventions to work; in pursuing a successful professional career?
Do we want to be a country where mediocrity is the norm – or a country where excellence is the norm?
If Mr. Nolan is so concerned about income equality, I’ll be happy to help him move to a country where it is illegal to build any sort of wealth. If he gets the residence visa done, I’ll pay for his one-way ticket to Pyongyang.