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I read many comments about how much money the very-rich are spending to avoid a relatively small tax increase. Would the tax increase really cost the Koch brothers more than the political donations do?

But the issue of the tax increase involves more than the loss in after-tax income. Neither the taxes nor the political contributions are going to affect the consumption behavior of the very-rich at all. Romney got something like $20 million a year. There are people getting more than $ 1 billion a year; that's $20 million a week! Want a $100 million palace? Fine, order one. But if you build one every year, and that sounds more exhausting than pleasurable, that's still only 1/10 of your income.

The first thing you buy when your income is limited is sustenance. As your income increases, you buy comfort. Then you buy prestige. When we're talking about multi-million dollar incomes, you have all the sustenance and comfort that you allow yourself when you consider your health. All that remains to purchase is prestige.

And much of the prestige that the very-rich person's position affords doesn't show up on his W2. His private secretary cossets him, and his staff laughs at his jokes. The corporate president whose corporation supports Harvard is honored when he visits Harvard.

He also wants the prestige of being a member of the most critically-necessary class.

That's the real benefit of the tax break. He might be alive because of a heart surgeon, but he is more necessary to society than mere heart surgeons are. He is a job creator, and don't you forget it. The tax breaks aren't necessary to motivate him to invest his wealth; indeed, it is damned hard to avoid investing wealth not used for consumption. The tax breaks are necessary for our acknowledgment that those guys are more important to society than we are.

This hypothesis explains not only the rule, but the exceptions. Gates and Buffetthave been very good about taxes, and I don't want to belittle their contribution to the discourse. Either one, however, has one hell of a lot more prestige than is conferred merely by being a member of the class. They don't need the tax break as an acknowledgement of their importance. Who ever heard of the Koch brothers, on the other hand, before they started spending some of their billions on reactionary causes?

The Plank blog in the The New Republic has an interesting report on the dramatic turn around in the relations between Barrack Obama and the hedge-fund industry. The author's conclusions are somewhat in line with my wider hypothesis. It wasn't that the administration's policies were bad for the industry -- Candidate Obama's response that he would raise taxes on them was regarded as gutsy honesty -- as that they didn't get the respect that they think they deserve.

If this hypothesis is correct, if the objection of the ultra-rich to tax hikes on their income is due to the slight it gives to their prestige, then this has consequences for future tax policy. The tiny rise in taxes on the richest 2% currently being considered is all very well. It is justice on those making (say) $250,000 to $1,000,000. In the future, though, when we get a Congress with the will to revamp the entire tax code, we should raise the rates on much higher incomes all at once. This will hurt their feelings, but the slight increase is already hurting their feelings. If the hurt feelings are not proportional to the increase, as seems clear, then the increase on really high incomes should match what revenues we need for a sane level of expenditure.

Without casting these in concrete, here are my first thoughts on what might be marginal tax rates for high incomes:

Taxable Income Marginal rate
1/4 M - 1 M 40%
1 M - 2 M 45%
2 M - 5 M 50%
5 M - 10 M 55%
10 M - 30 M 60%  
30 M - 100 M 65%
Above 100 M 70%
My father used to talk about "docking the dog's tail an inch at a time so it didn't hurt as much." Well, raising taxes on the grossly rich in stages would be just as ridiculous. We need the income, and their pain, although real, won't be associated with the amount of the increase. Let's get enough money to cover social needs for their loss of feeling special.

There is a constant refrain that "There are so few people making those stratospheric incomes that tax rates on them won't make any difference." Income taxes aren't levied on their numbers; they are levied on their incomes. A few years ago, the president said that the 25 highest paid hedge-fund managers made an average income of %1,000,000,000 apiece. Simply raising the taxes on this fragment of the ultra rich from 35% (and they pay closer to 15% because their pay is largely treated as capital gains) to 70% would bring in more than $8 Billion a year. That's not much, compared to the deficit, but it is one hell of a lot more than the savings from closing the Corporation for Public Broadcasting or cutting back on tricare.

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