New York Times: Dave Chappelle Makes the Case for High Marginal Tax Rates, by Neil Irwin:
Dave Chappelle, the comedian who walked away from a wildly successful TV show named for him a decade ago, made his first talk show appearance in ages Tuesday night. He probably wasn’t intending to make an argument about maximizing the efficiency of the tax system in his appearance on the “Late Show With David Letterman,” but that’s what he ended up doing.
Mr. Chappelle discussed the reported $50 million contract he walked away from when he abruptly ended “The Chappelle Show.” Does the loss of all that money haunt him?
“So I look at it like this,” Mr. Chappelle said. “I’m at a restaurant with my wife. It’s a nice restaurant. We’re eating dinner. I look across the room and I say: ‘You see this guy, over here across the room? He has $100 million. And we’re eating the same entree. So, O.K., fine, I don’t have the $50 million or whatever it was, but say I have $10 million in the bank.’ The difference in lifestyle is minuscule.”
His point is about the diminishing marginal utility of rising wealth. If you are flat broke and somebody gives you $1 million, that money significantly increases your quality of life. Going from $1 million to $10 million makes you better off, though probably not 10 times better off. And similarly, going from $10 million to $50 million in net worth creates far less improvement in your quality of life than those early steps of going from broke to $1 million or $1 million to $10 million. ...
That’s a reason advocates of higher marginal income tax rates on the highest earners would argue there is little loss of human welfare by enacting very high rates on the highest income brackets. The difference in quality of life between “very wealthy” and “extraordinary wealthy” is not that great, which should make it a relatively painless way to raise tax revenue.
The other side of this argument would be that society is better off when the top performers, whether in the corporate world or the arts, have every incentive to work hard and thus make the rest of us better off, whether it’s by running companies better (as in a C.E.O.) or producing a hilarious television show (like Mr. Chappelle). If most of what those top performers earn is taken by the taxman, they might choose to take their fortunes and use them to relax on the beach instead.
Of course, as Mr. Chappelle shows, it doesn’t always take a high tax bill to make a person walk away from a great fortune. Sometimes having a keen sense of the marginal benefit of each additional dollar, and the desire for artistic freedom, is enough.
(Hat Tip: Lisa Milot.)