As the so-called fiscal cliff gets nearer, you'll hear lots of talk about whether current tax rates on the rich are fair. As I've said before, fairness is a concept invented so dumb people can participate in debates. Fairness isn't a natural law of the universe. It's a psychological problem.

We sometimes get fairness confused with equality. Equality is usually good, and can often be measured with a satisfying precision. Fairness, on the other hand, is usually just a rationale for some sort of bias.

If you think the rich should pay higher taxes, you probably compare today's rates to years past when the tax rates on the rich were far higher, and you conveniently leave out the fact that few people actually paid those rates because of loopholes and deductions.

If you think the rich already pay enough taxes, you focus on the percentage of total federal income taxes they pay and leave out any mention of taxes the poor pay, such as payroll and sales taxes.

To demonstrate my point that fairness is about psychology and not the objective world, I'll ask you two questions and I'd like you to give me the first answer that feels "fair" to you. Don't read the other comments until you have your answer in your head.

Here are the questions:

A retired businessman is worth one billion dollars. Thanks to his expensive lifestyle and hobbies, his money supports a number of people, such as his chauffeur, personal assistant, etc. Please answer these two questions:

1. How many jobs does a typical retired billionaire (with one billion in assets) support just to service his lifestyle? Give me your best guess.

2. How many jobs should a retired billionaire (with one billion in assets) create for you to feel he has done enough for society such that his taxes should not go up? Is ten jobs enough? Twenty? 

Make sure you have your answers before reading on.

I thought of this question because I heard an estimate of how many families a particular billionaire supports. The estimate was a hundred. If you figure an average family is 2.5 people, one billionaire is supporting 250 humans.  He gets a lot in return, of course, but what struck me is how this number affects my feeling of fairness. When I hear that one person is supporting 250 non-relatives, plus a number of relatives too, it feels as if that billionaire is doing more than his "fair" share.  But as I've said, fairness isn't a real thing. It's just a psychological phenomenon that is easily manipulated.

My personal view is that if most credible economists say higher taxes on the rich are necessary to save the economy, I'm all for it. I think every rich person would agree with that statement. The question that matters is whether taxing the rich will help or hurt the economy. Fairness should be eliminated from the discussion.

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+6 Rank Up Rank Down
Dec 10, 2012
I figured most american type billionaires support 1-5 folks directly if they are truly retired. As Scott notes in previous posts, most of those with the drive to make that much money (unless inherited) probably don't retire...they just get more selective about what work they do. I think a billionaire could afford to hire about 1000 people a year, just from the interest on a billion $. Hire that many people, and you're not retired any more. The problem is billionaires just can't spend their money fast enough. Ever see Brewsters Millions?

The term job creator is a misnomer. See Banned TED Talk: Nick Hanauer "Rich people don't create jobs". The concentration of wealth is a problem. Taxes on high income are one way to redress the balance...nicer than a revolution or confiscation of wealth by governments.

Chuck.Milner makes a great point....some folks with 200k incomes are 'just getting by', and some folks with 60k incomes are increasing their net worth. I suppose if you spend 90% of your income, you are a job creator, no matter how much you make. I want to see taxes go up on incomes over 250k, and I'd like to see spending on national defense decrease. I'd like to see the runaway entitlements adjusted. I'd like Congress to take a pay cut every time they increase the deficit ceiling.

I'd like to see people who are good at math in government. Instead we have spin doctors.
Dec 10, 2012
I agree to that deal. Give me a billion US$ tax-free for the rest of my life and I promise I will support 110 people, 10% more than the average. It's a win-win for society and me:-) (not too mention those 110 illegal immigrants I will employ for a pittance).

On a more serious note. I don't think it is necessary to increase the taxes on the rich or corporations. Just close all loopholes. Mitt Romney should not get away with less than 15% taxes on his income.
+3 Rank Up Rank Down
Dec 10, 2012
Well, the Congressional Research Service, which has been used by used by both sides of Congress and is historically known as non-partisan, put forward a report stating that low tax rates on the rich has never been causative of economic growth. The republicans went nuts on this because it basically de-legitimizes their main economic talking point and managed to get it shelved, saying that they didn't like the wording. Worth thinking about.

Dec 10, 2012
My answer is 14,284 people per year would be the ideal.

Where did I get that number? Read on.

I read somewhere that life stops getting appreciably more enjoyable after earning 70,000$ a year. Let's take this as the best possible economic starting point, the fairest point.

If our billionaire is 100% committed to the happiness and lively hood of the maximum amount of people he can support will be equal to his billion divided equal among them. The math gives us 14,285.714 people. Take out one of those people to pay the billionaire and disregard everything past the decimal point.

Of course it's pointless to support a person for only a year, but imagine that each person adds precisely their salary in value to the business the retired billionaire is running. And viola you have a hypothetically closed system.
-1 Rank Up Rank Down
Dec 10, 2012
I'd say, your 250 is probably correct.

As for, how many they /should/ support, I'd do a slightly different calculation:
If you give a poor man $1000, it will probably go to consumption and raise demand. -> good for the economy
If you give a rich man $1000, it will probably get lumped with his offshore investments on the caiman islands. -> no noticable benefit to the economy

So, you can try to draw a curve of how much money would stimulate the economy how much if it were distributed across how many people. Real rock bottom people will probably use it for repaying debts (i.e. waste it on banksters, crudely spoken) but others will buy a new car, better food or invest in their health, i.e. creating demand in goods and services.

Now you find the point (or area) where a billion stimulates demand the most and that's the place where the money would do the most good. Of course you need to leave him with enough income to make the poor people want to aspire to be like him but that's a psychological matter on which I'm therefore fully unqualified to make suggestions.
Dec 10, 2012
Fairness is a sucker's game, and most of the people that want higher taxes on the rich are operating under a personal disdain for successful people and a mistaken belief that the majority of success is gained by stepping on the little guy and leaving a trail of poor people behind you.

If the goal is to save the country, we need to focus on revenue, and as long as we are on the right-hand side, downward slope of the Laffer curve, the way to raise revenue is to allow the economy to grow by lowering taxes.

The other big secret is that we have much less of a tax and revenue problem as we do a spending problem.
Dec 10, 2012
He employs 100 people who don't have immigration papers. That way he can pay them less than minimum wage, no overtime, no legal recourse for abuse. VERY few people who work for the rich in service positions can afford to support a family of 2.5 people. (Of course support is a relative term)
Dec 10, 2012

The president also knows that spending cuts will hurt the economy, tax hikes on the not rich will hurt the economy and we need to do something about the deficit. So he chose the least painful way to reduce the deficit; raise taxes on the folks who can afford it the most.
-9 Rank Up Rank Down
Dec 10, 2012
There is a fundamental problem with your assertion. We KNOW that raising taxes on the rich will hurt the economy. The president has agreed that it will hurt the economy. He advocates for doing it anyways, as an issue of fairness. For someone with that thought process, this was never a rational decision. You can't reason someone out of a position that they weren't reasoned into.
Dec 10, 2012
The foundation of your argument, that fairness isn't "real," is not supported by current research.

It fits your bias, but that does not make it correct. Please revise your hypothesis.
+8 Rank Up Rank Down
Dec 10, 2012
The answer to Question 2 is "there is no number." Income tax is based on how much income you have. Let's assume the billionaire is earning an 8% return on his vast wealth, so he's making $80 million a year. Whether he uses that income to hire a hundred people to perform services for him, or buries it all in a hole in the ground and lives on gruel, makes no difference. It's still income and he should still have to pay whatever income tax is imposed on $80 million in income.

I know our tax code has lots of loopholes and breaks, including some for job creation, so maybe our billionaire could take advantage of those, but on the whole he should pay whatever tax is imposed on $80 million in income.
Dec 10, 2012
Answers to your questions:

1-my best guess was that said retired billionaire would, through investments that don't require any work, would be able to spend $50 million a year for the rest of his life and that on average he would be paying $250K per person he supported (he's getting high class help). Conclusion: he supports 200 households.

2-The number of people he employ has nothing at all to do with fairness. Assuming my estimate is right is it 'fair' for those 200 households to be in the personal service of one man? If we're talking about fairness here the question we have to ask ourselves here is what did the guy do to deserve those 200 'servants', as well as the mansion and other stuff he bought before he retired? My answer: there is nothing someone can do during their working life that DESERVES that sort of lifestyle. Even J K Rowling, though her books have tens of millions of fans, doesn't DESERVE that kind of money for the fifteen years or so she put into her writing

This answer, I remind you, is focused on the issue of fairness. There are, of course, other issues to consider when one asks questions like 'how much should the rich pay?'
+23 Rank Up Rank Down
Dec 10, 2012
"The question that matters is whether taxing the rich will help or hurt the economy. Fairness should be eliminated from the discussion."

The problem is what helps or hurts the economy is entirely subjective too. For example, is an economy that grows faster but the gains go exclusively to the ultrawealthy better or worse than an economy that grows more slowly but everybody benefits? Are certain sectors or jobs more important?

Whether you call it fairness or something else, you can't avoid making decisions that have an impact on who benefits and who doesn't.
Dec 10, 2012
And how many lives have been and will be ruined by said lifestyle?
+17 Rank Up Rank Down
Dec 10, 2012
My answer may give a clue as to why economics is called "the dismal science." First of all, are you referring to how many people the billionaire is employing directly, indirectly, or via total influence? The latter two could include his total consumption. All of which, according to liberal economics ought to have a multiplier effect (he pays the chauffeur, who buys groceries; the grocer uses it to buy a new freezer; the appliance guy uses that income as a down payment on a car, etc.). So according to this orthodoxy, all of the money he spends should stimulate the economy just like government stimulus. In which case, what good does it do for government to take it from him and spend on stimulus? He's doing it himself! Of course liberal economists will never say that.

But what of his billions that are not spent? They're invested - either in stocks, which means he's allowing companies to grow, hire, or invest in productivity-enhancing technology; or bonds, which companies (or municipalities, or governments) use to do the same; or deposited in a bank, in which case it's loaned out as mortgages, small business loans, personal loans, etc.

Bottom line: his wealth is part of the economy one way or another. From a macroeconomic perspective, it doesn't really matter if his name is attached to it or 1000 other people's names are; it's deployed either way. From a micro perspective, he gets to enjoy the consumption, not me, but that unfortunate detail doesn't substantially affect the economy.

Fairness: I agree that economic fairness is a dubious idea, but I do think there's a fairness most people can agree on (and our nation's founders tried to instill this): that we all play by the same set of rules. We shouldn't cheat, steal, etc. From an economic perspective, I'd liken it to football: without rules, it would be chaos (in fact, there would be no game - caveman economics); without referees, we could have a friendly scrimmage (families or tribes), but there's no way enforce the rules on those who would take advantage for themselves. So we create rules that allow for play (or commerce) but minimize injuries and referees to enforce them. To me, the problem arises when we try to pick winners and losers, or handicap one team over another.
+2 Rank Up Rank Down
Dec 10, 2012
That should have been "free *online* computer science classes".
+5 Rank Up Rank Down
Dec 10, 2012
I don't think "fairness" has anything to do with anything.

Is it fair for a child to be born to drug addicted single mother who thwart his or her opportunities to get a decent education, develop the emotional maturity and stability necessary to lead a stable, productive life, etc? That same child, born to another family, given proper support could have a great life - and make huge contributions to humanity.

There is no fair.

On the other hand, we have an opportunity to think about the society we want to live in. We can decide we want to tax ourselves to provide infrastructure, education, child protective services etc. We can lazily ignore wasteful spending, corrupt or inefficient government employees - or we can demand accountability and good management.

We can run up debts for wars and ineffective government programs - that enrich a few people but fail to deliver on their promise - or we can be smarter about defense, diplomacy and development.

We can also decided that we need to pay down the deficits we do have by going after the income sources least likely to damage the economy. I'd argue that means taxing the wealthy. I'm not really concerned about fair. I believe evidence shows you can jack up taxes quite a bit - without damaging job-creating activity. It's the practical thing to do. Fairness is irrelevant.

We need to stop wasting energy talking about "fairness" and talk about what we want to accomplish - and the most effective way to get there.

One small example: Why I am I reading about expensive proposals to "retrain" high school graduates to be computer programmers, etc.?

Hello? We have a public school system. Why not "train" them while they are still in high school? I just asked a group of 15 teens who were debating education issues how many of them had taking a single computer programming or computer science class. One kid raised his hand. He attends a private school.

Kids could take a free only computer science course in high school classes with a paid teacher acting as a monitor - so lack of experienced teachers is not a barrier.

My point is that we do a lot of stupid things with the resources we do have because we waste time worrying about things like "fairness" that are really things.
Dec 10, 2012
Its not about fairness but what kind of society you want to live in. Do you want to live in a society that has less crime, very good standards of living, mostly equal opportunities to each person born there etc?

Countries like Sweden, Denmark are very equal (see GINI index) and also have very high taxes but also all of the above compared to the country with the most billionaires...
Dec 10, 2012
I have a question about what exactly is "higher taxes"
Given the numerous deductions available at the higher income levels, the high taxes rates are really not indicative of what a weathly person actually pays. Continually raising the tax rates is a exercise in futility as long as thousands of deduction options are available.
The real solution is something resembling a flat tax rate, with NO (or extremely limited) deduction options. Then with a rate 0f maybe 15%, the weathly would really pay 15% of their taxable income.

Dec 10, 2012
Taxation is theft and theft always hurts the economy. kentforliberty (dot) com/taxation
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