In the big inequality debate, one thing unites those concerned by wealth disparities: they want the rich to pay more in taxes. But how to do this? The “tax efficiency” industry is thriving, money is hidden offshore, and we seem some way away from serious global action.
I propose a fresh perspective. Governments should take a look at the private sector and learn better ways to extract money from wealthy people. Whatever you might think about markets, and how they often benefit the already wealthy, they have given us some very imaginative ways of convincing the rich to part with that wealth.
Let’s look at airlines. As the New Yorker recently reported, airlines spend up to a half a million dollars to install first class seats to attract rich patrons. The tickets for those seats can run up to US$20,000 for perhaps 14 hours of use. Better still, they are rated highly by their users even though they are in effect not much more than dorm rooms shared with 10 or so other people. That you can ask people to shell out that much for so little should give us pause.
This phenomenon occurs everywhere. Airlines have continued it through awarding “status” associated with frequent flyer use, and credit card companies have a similar status system. Luxury products in jewellery, fashion, cars and other things sell for well above their manufacturing cost or their functional value. And it is often the conspicuous nature of such expenditures – especially what they tell the rich about each other – that drives demand. After all, in first class, the rich check out who else is with them. I don’t see that happening at the back of the plane.
Which brings us back to taxes. The issue with taxes is that they are an inherently private activity. We have set ourselves up to ensure no one aside from the tax collectors themselves know about our income and wealth (often, even the authorities don’t know the full story). While a rich person may lament being under-appreciated for the tax contributions they do make, the system drives a lack of transparency.
This is not how the private sector would run things. After all, charities who target the wealthy rarely do so with a plea that all remains private. A gala ball and big awards remain standard fare.
Put this way, there is no reason why government could not do the same. It knows precisely how much each individual has paid, and it could use that knowledge to set up their own status and recognition system. Imagine, for instance, a “US Platinum” status for those Americans who have made one billion dollars in actual tax payments over the past decade. Each year those who had reached this threshold would receive their recognition. Of course, if one wanted to keep such things private, they could opt out of the program. Hence, it is purely voluntary.
The new status could come with other benefits beyond public recognition. Taking a leaf from the airlines, recipients would receive a Platinum card entitling them to various perks, from an easy time at airports to favoured treatment in dealing with government agencies. The super-rich might receive those things already but this would allow it all to be transparent.
This could be a chance for governments to be imaginative. Private businesses extract more from the rich by playing on the conspicuous nature of consumption within their circles, and governments could do the same thing by ensuring that wherever the rich congregate, it is clear who has status and who does not.
Consider the British honours system, where status is awarded to knights and dames. In the tax-based system, the same recognition would arise through Platinum membership: “you say you’re rich but I don’t see you with your Platinum pin, what gives?” I suspect opting out will be rare.
Dealing with the objections
There are several possible objections to this idea. First, there is the notion that the government would be celebrating the rich. Of course, this is a key feature of the proposal so an attitude change would be required. It is not unprecedented for the government to confer status: it does so for military veterans, for instance.
Second, what about charities? Shouldn’t contributions to charities or non-profits also count toward Platinum status? Yes, it is true that many super-rich already give, but they generally receive separate recognition for that already.
Third, what about those who aren’t rich? Don’t they contribute? Of course they do, but one issue at a time. There can be other awards for other contributions. What I am suggesting here is that there is a new awarded tied objectively and unapologetically to pure money given to the government. It is a missing element in public recognition.
Fourth, won’t this just entrench rich dynasties with more benefits? This is a concern, but I would ensure the status is only conferred to individuals. If a Platinum taxpayer should pass away, their status would not pass down to his or her children (unless of course they paid a suitably hefty estate tax).
Fifth, even one billion dollars seems a tad high a threshold, shouldn’t there be others? Yes, the number is pulled out of the air but my goal was to start at the long tail of the income distribution. The precise details can be worked out in time, but the model the airlines use is a pretty good place to start.
Finally, if this works, won’t it mean that the rich will end up paying more taxes in total? Sometimes the rich travel more just to improve their airline status. Might some just pay more than they have to in order to do the same? Won’t that reduce incentives as much as higher tax rates would?
Well if that occurs, bravo! Our job is done. Self-redistribution is the ultimate voluntary act and because it is something people choose to do rather than are forced to do, it must be something they prefer. In other words, how great would it be for incentives if the rich tried to get richer so they could pay more taxes and earn the benefits that accrue from it? That sounds like a win-win for the political and economic ages.