In the buildup to the “resolution” of the Fiscal Cliff, there was a great deal of discussion about the effects of tax rates on the American economy. For Democrats, the magic word was “revenue”, meaning how much more money the government could take from the hands of the private sector. For Republicans, the magic word was “jobs”, meaning what that money meant to the entrepreneurs who need help to maintain and grow their businesses. There was a great deal of talk about the “rich” needing to “pay their fair share,” and the plight of the middle class who are perpetually caught between government welfare programs and self-sufficient wealth. But amidst the flurry of frequently repeated words, one comment caught my ear which I only heard once, but which struck me as so powerful as to be the most important thought in the entire debate. Those taxes tied to high incomes are classist and serve as a means to insulate the “rich” from upwardly mobile Americans.
The key to understanding the classism of taxes is to understand what it means to be rich in America. Our political discourse treats “the rich” as a single group of people with access to far more money than any “ordinary” person could ever hope to gain. In reality, there are at least two different groups of “rich” in America with different profiles and different concerns.
Classic examples of “rich” people in America include Warren Buffet, Bill Gates, and the Kennedy family. Those people, and others like them, are rich in the sense that they have accumulated a great deal of wealth which they hold independently of any other productive activity in which they may be engaged. In other words, their bank accounts are overflowing and would continue to do so even if they never worked another day in their lives. So too with the other wealthy people who have come out in favor of high taxes on the “rich”. While these people have piles of cash, it isn’t their income today that makes them wealthy.
The other group of “rich” people in America are a lot of people that we might not normally consider. While everyone knows that doctors and lawyers make tons of money, they mostly aren’t the people we think of as being among “the rich”. Neither is the small business owner who can certainly earn a good living. Indeed, as any Jane Austen novel can attest, the professional class of doctors, lawyers, and business owners is distinct and different from the gentry or aristocracy. In America, where money and class are intimately related, professionals (especially business owners) have the ability to jump into the higher classes if only they are able to accumulate enough wealth. Ultimately, though, these are people who still need to be able to generate income in order to better their lives.
Seen in that way, consider the effect of raising income taxes on people with incomes over some arbitrary amount. For people already in the higher class, this won’t affect them very much because their incomes are rather beside the point — Bill Gates will still be a billionaire even if the government doesn’t let him earn another cent. However, for people striving to earn their first billion dollars, a tax powered income cap of $400,000 would force them to wait over two thousand years before having that first celebration — assuming they never spend any money on anything. Even at more modest tax rates, higher taxes still impose barriers to entry which will reduce the number of people willing or able to move into the higher class.
A tax based on income is a real barrier to upward mobility particularly for people (such as minorities) who don’t come from a background of privilege. Earning wealth in America already requires a commitment to saving (and an ability to save) plus a knowledge of investing (and an ability to invest) which tends not to exist (and may not be possible) among the lower classes. As taxes become more confiscatory, and as the tax code makes shielding wealth from taxation more difficult, the level of knowledge required to succeed becomes ever greater. A person escaping from poverty will need to rely more on strangers for help and support, and so will be more susceptible to bad advice whether given honestly or by people trying to take advantage.
Historically, the upper classes have gone to great lengths to maintain their status above the people in the classes below. Rules of society, the privilege of money, and even armed conflict have all been employed to protect “old money” from new. But I am aware of no other time in history when the rich, by appearing to harm themselves, have so successfully won popular support for their own class protection. While everyone focuses on the people who have already become rich, it is the people who are most successfully trying to get there who will experience the greatest harm.
Far be it from me to say that the rich in America — a class which includes most politicians — is trying intentionally to structure the tax code to prevent other Americans from intruding into their class. But like any other identityism, classism need not be intentional to be real. The fact remains that raising taxes on higher income earners imposes barriers to upward mobility which will tend to further separate the rich from the people who are trying to get there.
High taxes on the rich are classist; not against the “rich”, but the “poor”.