How much should the wealthy pay in taxes? Should the top marginal tax rate be thirty-one percent or thirty-seven percent or perhaps a nice, round seventy? Should capital gains be taxed at the same rate as income? Democrats (and most Americans) think the wealthy should pay more. The wealthy do not agree. By coincidence, neither do Republicans, who say that taxing the rich an extra one, two or three percent on their second million dollars a year would rob them of all incentive to get out of bed in the morning, sapping their very life force.
Luckily, there’s a way to get the wealthy to pay more without creating a mental health crisis among the nation’s top earners. All we have to do is utilize one important, though frequently overlooked fact: The rich simply don’t know how much money they have.
I learned this several years ago when I briefly worked for a genuine, bona fide billionaire, the CEO of a mid-size corporation. In our very first conversation, he let me know, more or less as an ice breaker, that he had 1.5 billion dollars in assets and that his net worth went up or down every day by five million dollars due merely to the normal fluctuations of the stock market.
In other words, he had so much money, he couldn’t keep track of it.
This illustrates a basic economic reality: your knowledge of your own wealth exists in inverse relationship to how much you own. The more money you have, the less you need to count it. Of course, like Scrooge McDuck, you may want to count it, obsessively piling up gold coins all day long, but you don’t need to do so.
On the other hand, when you’re broke, you always know exactly how much you have in your pocket at any moment. I know this is from personal experience. Being broke means you say things like, “I can afford the burger and fries, but I can’t afford the bucket of chicken.” Being rich means you say things like, “My net worth goes up or down by five million dollars every day, due merely to the normal fluctuations of the stock market.”
We like to say that Bill and Melinda Gates are worth 130 billion dollars (or 65 billion each, post-divorce) but that is just a guess. No one knows how much money Bill and Melinda Gates have. They don’t know. Their accountants don’t know. Their wealth is so vast it is unquantifiable. It has ceased to be a number, but exists only as a concept, an aura, a state of mind, a characteristic of their essential being.
Imagine getting a job as one of the Gates’ accountants. On your first morning at work, you sit down at your spreadsheet and immediately jump back up, shouting, “Holy (insert appropriate expletive)! They lost 500 million dollars yesterday!” The other accountants would laugh at you.
“That?” they’d scoff. “That’s nothing. That’s’ just the normal fluctuation of the stock market. We don’t tell them about anything less than a billion.”
Which brings us to the obvious solution to our endless and tiresome debate over tax rates. Since the wealthy don’t know how much money they have, all we have to do is tax them at a higher rate, but not tell them about it! If we raised taxes on the wealthy and took the money out of their accounts when they weren’t looking, say overnight, they would never notice it was gone!
“Hmm,” they would say. “My net worth seems to have gone down 500 million dollars overnight. Oh, well, it must be the normal fluctuation of the stock market.”
The Stealth Tax, as I call it, has the great advantage of simultaneously raising large amounts of money for the government and being completely safe and pain-free for the top one-half of one percent of all taxpayers. Bill and Melinda Gates would still be worth 65 billion each, because as we’ve seen, that is not an actual number, more like a vague description, like saying the Rocky Mountains are really, really, really big. No one measures the daily soil erosion and decides, “No, now they’re just really, really big.”
It’s true the Stealth Tax may pose some minor legal and legislative problems, but I’m sure Ron Klain and those other geniuses in the White House can figure out a way to make it happen. Maybe they can use the reconciliation process. I don’t know what that is, but it seems to work. In the meantime, don’t let any wealthy people read this. After all, what they don’t know won’t hurt them.