Friday, October 21, 2022
Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Raskolnikov's Should Only The Richest Pay More?
This week, David Elkins (Netanya, visiting NYU 2021-2023; Google Scholar) reviews a new paper by Alex Raskolnikov (Columbia), Should Only the Richest Pay More? (2022).
Reportedly, F. Scott Fitzgerald once remarked to Ernest Hemingway that “the rich are different from you and me,” to which the latter replied, “Yes, they have more money.”
Taxing the rich has a strong intuitive and political appeal. However, the call to do so means little unless we identify whom we mean by “the rich.” In 2011, the Occupy Wall Street movement demanded in the name of the “99%” that the “1%” pay more. Under this conception, a person who is wealthier than 98.99% of the population is a member of the downtrodden “99%,” and has a place in the front line of protesters calling for increased taxes on the rich. Since then, proposals to tax the rich have tended to raise the threshold even higher. The Biden administration’s proposal to include unrealized gain in the income tax base would have applied only to those with assets of over $1 billion or income of over $100 million per year for three consecutive years.
Elizabeth Warren has proposed an annual wealth tax of 1% on net wealth exceeding $50 million and of 3% on net wealth exceeding $1 billion. Bernie Sanders has proposed a similar tax with a series of graduated rates, from 1% on net wealth exceeding $32 million to 8% on net wealth exceeding $10 billion.
In this week’s feature article, Prof. Alex Raskolnikov argues that, contrary to the prevailing trend, we should radically expand the range of incomes that should be considered as sources of additional revenue. To facilitate the discussion, he describes the top 1% as “the rich” and then breaks this group down into “the really rich” (the top tenth of a percent) and “the pretty rich” (the next nine-tenth of a percent). Below the rich are “the affluent,” those who are well off enough to be in the top ten percent, but not well off enough to be in the top one percent. He posits that it is not only the rich but also the affluent who should pay more.
To support his thesis, Raskolnikov lays out what he considers the most persuasive arguments in favor of taxing the rich and demonstrates that the same lines of reasoning would also justify taxing the affluent. For example, although it is true the rich have captured a large portion of the U.S. economic gains since the 1970s, it is also true that while the affluent have not done nearly as well as the really rich, they have actually done better than the pretty rich. With regard to social mobility, he offers statistics to show that while the children of the rich are more likely to be rich themselves, there is less social mobility within the class of the affluent than there is between the class of the rich and the rest of the population. Turning to what he calls “sapping the American spirit,” the author posits that wealth produces non-monetary negative externalities in the form of pessimism and other bad feelings that people experience when they compare their own economic situation with that of those who are better off. However, he argues that people tend to compare themselves to those with whom they expect to have incomes comparable to their own. In his graphic example, a beggar will focus more on successful beggars than on millionaires. Thus, it is the success of the affluent – more than the success of the rich – that will negatively affect the welfare of those who occupy the middle of the economic spectrum. Finally, he claims that while the rich as individuals may have undue political power, it is unclear whether the rich, as a class, have more political influence than do the affluent, as a class.
The provocative question that the author then poses is why the affluent seem to have been given a pass in the academic discourse. While doing so might be reasonable for politicians, who must build coalitions and perhaps cannot afford to alienate a relatively large and influential group like the affluent, academics are under no such constraints. He presents a number of intriguing suggestions. One is that academics simply follow the lead of politicians. When Democratic politicians propose taxes with high income or wealth thresholds, academics (a large majority of whom identify as Democrats) line up to lend their support. Another is that most academics are themselves in the category of the affluent. Their almost exclusive focus on taxing the rich may therefore stem either from rational self-interest or from the natural inclination of most people not to view themselves as wealthy.
The query posed by the article’s title is whether only the richest should pay more. I would suggest that the question might require a bit more clarification. Should only the richest pay more – than what? Perhaps the most intuitive answer is: more than they are paying now (and indeed, the author indicates as much when he argues that the affluent should be considered as the source of “additional revenue”). However, the article does not discuss how much the affluent are currently paying, and (unless I missed something) all of the statistics presented are of pre-tax income. True, at one point the author does suggest that a possible justification for giving the affluent a pass is that they already pay enough; but that argument is mentioned only in passing, there are no statistics to back it up, and the only response is that since 1960, the tax burden on the affluent has indeed increased but not by much (and the increase is similar to that experienced by the rich). Nonetheless, however strong the case is for taxing the affluent, there is presumably a level of taxation that satisfies that demand. Whether the tax burden they currently bear is sufficient would appear to be relevant for the discussion.
An alternative answer to “more – than what?” might be “more than those who are less than affluent.” Anyone who supports progressive taxation would presumably concur that a positive answer is indicated. However, here, too, there does not appear to be any discussion of the relative tax burdens borne by the affluent and by those situated below them.
Whatever the parameters of the question posed, the author does not provide an entirely unambiguous answer. At times, he seems to espouse the position that the affluent should pay more. At other times, he appears to adopt a more agnostic approach, claiming that there may be reasons to distinguish the affluent from the rich but that those who wish to make that distinction need to provide a more convincing case that they have hitherto. Perhaps that is the very point that the author intends to make. By failing to address the issue, the current academic discourse provides no justification for excluding the affluent.
This article presents a serious challenge to all those involved in the conversation of how to structure a progressive tax system. As it convincingly argues, one cannot simply assume that it is only the richest who should bear the burden and give an unexplained pass to those who, while they may not be “rich,” are better off than over 90% of the population. Furthermore, given that those involved in the discourse typically fall within the affluent category, any attempt to make that distinction must be subject to heightened scrutiny. Perhaps it is true that only the richest should pay more. Perhaps the affluent already pay enough (assuming that “more” means more than they are paying now). However, as the article insists, such a claim must be the proven. It cannot simply serve as the starting point of the discussion.
Here’s the rest of this week’s SSRN Tax Roundup:
- Eric J. Allen (UC Riverside) & Aydin Uysal (Charles Shwab), The Effect of the Mandatory Disclosure of Corporate Tax Returns on Reporting Bias (2022)
- Jeremy Bearer-Friend (George Washington), Comment on Equitable Data Engagement and Accountability (2022)
- Frank G. Colella (Pace), Incorporation by Reference Nixed Charitable Deduction for Art, 177 Tax Notes Fed. 35 (Oct. 3, 2022)
- Bridget J. Crawford (Pace) & W. Edward “Ted” Afield (Georgia State), Yesterday’s Protester May Be Tomorrow’s Saint: Reimagining the Tax System Through the Work of Dorothy Day, __ Tax L. Rev. __ (2022)
- Stephen Curtis (Cross Border Analytics), eBay’s Cost Sharing Arrangement – Frankenstein’s Progeny (2022)
- Charles Delmotte (Michigan State), The Promises and Pitfalls of a Blockchain Driven Tax System (2022)
- Michael Doran (Virginia), Executive Compensation and Corporate Governance (2022)
- Tatiana Falcao, Fragmentation of Contracts: Another Look at U.N. and OECD Model Provisions, 105 Tax Notes Int’l 337 (2022)
- Tatiana Falcao, A Multilateral Approach to Carbon Taxation, 102 Tax Notes Int’l 775 (May 10, 2021)
- Lex Fullarton (Curtin) & Dale Pinto (Curtin), The Foundation of the Wade Case: Concrete or Clay?, 23 J. Austl. Tax’n __ (2022)
- Nathan C. Goldman (NC State), Christiana Lewellen (NC State) & Andrew Schmidt (NC State), Evidence on Firms’ Use of Subjective Evidence When Estimating the Deferred Tax Asset Valuation Allowance (2022)
- Bernd Hayo (Marburg) & Sascha Mierzwa (Marburg), Legislative Tax Announcements and GDP: Evidence from the United States, Germany, and the United Kingdom (2022)
- Gábor Hulkó (Széchenyl István) & Michal Radvan (Masaryk), Regulation of Public Finances in the Czech Republic in Light of the Financial Constitutionality in Regulation of Public Finances in Light of Financial Constitutionality 57 (Z. Nagy ed., 2022)
- Tarun Jain (Supreme Court of India), De-hyphenating Tax From Contractual Realm: Prioritizing “Party Autonomy Under India Law (2022)
- Tarun Jain (Supreme Court of India), Privity of Consideration: A Contractual Doctrine Seeking to Find Space in GST Law in India (2022)
- Vasiliki Koukoulioti (Queen Mary) & Chris Reed (Queen Mary), International Tax Implications of Cloud Computing (2022)
- Ryan H. Murphy & Colin O’Reilly (Creighton), Freedom Through Taxation: The Effect of Fiscal Capacity on the Rule of Law (2022)
- Doron Narotski (Akron) Tamir Shanan (College of Management), Corporate income Tax: We Tried the Stick, How About the Carrot? (2022)
- Moritz Scherleitner (Aalto) & Jasper Korving (Maastricht), Article 6 of the Anti Tax Avoidance Directive – Living a Life on Its Own? (2022)
- Rasmus Smith Nielsen, Does The Law of Rule or the Rule of the Executive Power (The Danish Minister of Taxation) within Danish Tax, VAT and Duty Law Constitute An infringement of European Human Rights Law? (2022)
- David I. Walker (Boston), Donor-Advised Funds in the Wake of the Tax Cuts and Jobs Act (2022)
- Heydon Wardell-Burrus (Oxford), MNE Strategic Responses to the GloBE Rules (2022)
- Heydon Wardell-Burrus (Oxford), A Pillar One Design Proposal: Leveraging Pillar Two (2022)
- Heydon Wardell-Burrus (Oxford), Pillar Two and Developing Countries: The STTR and GloBE Implementations (2022)
- Yan Xi (New South Wales), Income Tax Law Design and Equity: Lessons from Hong Kong, __ Singapore J. Legal Stud. 128 (2022)