Review of Tax The Rich. Preview of conversation with Patriotic Millionaires.
Under our current tax laws, which would seem to have been created by the people who manage the money of America’s richest citizens rather than by public servants, Jeff Bezos, the richest man in the world, with a net worth of nearly 200 billion dollars, enjoys an effective tax rate of less than one percent. As was revealed in a recent ProPublica investigation, Bezos, in 2007, when he was already well past the billion-dollar marker, paid nothing at all in taxes.
The fact that no one is out in the streets expressing outrage over this, and any number of other similarly outrageous examples of tax avoidance among the current and aspiring billionaire class, speaks volumes about how resigned or immune we’ve become to even the most blatant manifestations of economic injustice. Bernie Sanders and his passionate proteges and followers notwithstanding, Americans seem to generally accept that Bezos, Elon Musk, Bill Gates, and their ilk are simply the winners in our winner-take-all, zero-sum game, and there’s nothing that can be done about it.
But maybe the pendulum of history is beginning to swing in the opposite direction. Congress spent much of summer and now fall taking up and stripping down President Biden’s two big economic efforts — one bill for infrastructure and the other aiming to reconfigure America’s social safety net — the latter of which was written with the aim of upending some aspects of the rigged game. It’s not clear what changes will ultimately be included in the bill — there’s new movement on that front daily — but this has meant that taxes and tax policy are now front and center in ways they have not been before, with even the more arcane tricks the wealthiest have traditionally used to get out of paying their fair share starting to get some sunlight. (See this New York Times Op-Ed from September 25 on the “stepped up loophole.”)
Who, for instance, would have thought that the phrase “tax the rich” would have made it into the society pages? That’s what happened when progressive New York politician Alexandria Ocasio-Cortez dressed for the cause in a gown emblazoned with the words, written in red, to the Met Gala in September.
Tax the Rich — with the addition of an exclamation point — is also the title of a recently published book by Erica Payne and Morris Pearl of the Patriotic Millionaires, a group created to ensure that the injustices of our tax system are brought to, and remain on, the front burner of American consciousness. Progressive activist Payne is the Patriotic Millionaires’ founder and chief strategist, and Pearl, former managing director of BlackRock, Inc., is the organization’s board president. Payne was inspired to create the group in 2010 during the lame duck congressional session, when it became clear that then-President Obama would cave to Republican pressure to extend the Bush-era tax cuts, for even our richest citizens.
“That pissed me off,” she told me in a recent Zoom interview with her and Pearl.
Subsequently, lots of things about how the rich are taxed have been pissing her off, with a prime example being capital gains. Capital gains are how people wealthy enough to live off their investments make the bulk of their money. The income — capital gains — they make passively from these investments is taxed at a lower rate than the income made by actively working people. As she describes it, “If Morris and I made the same amount of money, he by selling some stocks, and I by working every day for a year, he ends the year richer than me. That is perverse.”
Perhaps you’re sympathetic to this line of thinking, but turned off by the name Patriotic Millionaires. So are many of the group’s members. Payne might have twice as many rich people on board if she’d made the name less “obnoxious.” She doesn’t care. She’s out to “unrig” the economy, not to calm fears or pacify egos. The name and the group’s work are meant to draw attention to the core concern they were created to address, namely “the destabilizing level of inequality in America.” No one likes talking about their money, but Patriotic Millionaires would like you to know that it is time, for the sake of the republic, to talk about your money.
“We are not exactly known for our subtlety,” she acknowledged.
The book’s language, like that of its authors, is blunt, and colorful. For those, like me, who are about as likely to study American tax policy as they are to run naked down Fifth Avenue, “Tax The Rich!” is an easy-to-swallow educational pill. It employs a breezy, fast-paced, at times sarcastic style, and is shot through with a few charts and graphs, as well as lots of New Yorker-style cartoons. It uses real-world comparisons to help get across hard-to-grasp concepts, such as what Bezos’ fortune translates to in the real world. “If you had worked every single day, from the time Columbus sailed to America [in 1492] to the present and earned $5,000 per day,” it explains, “you would still have less money than Jeff Bezos makes in a week.”
Well, that does help put things in perspective, doesn’t it?
The Patriotic Millionaires takes a three-pronged approach to fighting the economic inequality of which their members are some of the biggest beneficiaries. They want reforms to tax policy that overwhelmingly rewards the wealthy with more wealth, money out of politics through campaign finance laws, and a “reset of our wage and labor laws to ensure that working people, including those in the new ‘gig’ economy, are guaranteed a fair share of the proceeds of business and paid a wage they can actually survive on.” The bulk of their work is concentrated on tax policy and raising wages. To be eligible to join Patriotic Millionaires, you can’t be just a millionaire; you must have an annual income of at least one million, or total assets of at least five million.
How eager are America’s millionaires to join ranks with Payne and Pearl? Membership in the organization currently stands at about 240, or just under .05 percent of eligible Americans, according to Payne. In other words, not terribly eager. But, she explained, “I just recruited as many people as I needed to have a critical mass, and then I spent my time doing the work. What we really need to do is run a public education campaign, talk to the press, and talk to lawmakers.” Payne and Pearl both also believe there’s a cultural sea change afoot that the political class will eventually catch up to, which is making issues of basic economic fairness increasingly unavoidable. The Patriotic Millionaires believe, fundamentally, that “inequality is the cause of our social unrest. We’ve designed a political economy over the last several decades that by definition is going to make this country become even more unequal, even more quickly. You’re seeing that now, with social unrest, lack of social cohesion, deaths of despair higher than they’ve ever been. We’re at a crisis point.”
I’m not the only one who has a hard time getting my head around the nuances of American tax policy, apparently. Lawmakers don’t understand most of it, either, said Payne. She’s met with many the past few years and says “their lack of knowledge about the tax system, and the results of the tax system, is pretty disturbing given their centrality to our nation’s experience.”
Pearl says he was partly inspired to devote his life to this work life on a visit to Athens, when he looked out his hotel window at street protests, as private discontent turned public. He now devotes all his work time to the group, making appearances and lobbying congresspeople. In 2015 he appeared on the “Daily Show” with Jon Stewart to argue that he didn’t need more money.
Probably the most well-known Patriotic Millionaire is Abigail Disney, granddaughter of Roy and great-niece of Walt, who was profiled, along with the organization, in The New Yorker in early 2020. In the piece, she describes coming to terms with the waste that accompanies great wealth when she was young and provided with a full-size private jet at her disposal, along with an entire staff. Disney has gotten under the skin of current Disney company leadership by highlighting the low pay and poor working conditions of employees, and prioritization of shareholder value over people.
She and other high-profile members help Payne and Pearl get the word out about “Tax the Rich!,” which they wrote so that “normal people without accounting degrees can figure out what’s going on and help fix it before it’s too late.” In terms of new learning, I got most of what I came for in the chapter that laid out in detail some of the ways the rich game the tax system, summarized here.
Capital Gains Tax, or “Their Money vs. Your Sweat”: You invest $50,000 in Apple, your investment grows by 10 percent per year for 10 years, and so your capital gains on that investment is an additional $50,000. Capital gains are, for millions of wealthy people — both for those who have earned and those who inherited their wealth — their primary source of income. It’s what they live on. But while the maximum income tax rate is 34 percent, the maximum capital gains tax rate is only 17 percent. So, in the example laid out by Pearl in the book, a couple called the Werkhardts work full-time and make $100,000 a year. Subtract the standard deduction — $24,800 in this case — and they’re left with taxable income of $75,200. But under the new Republican tax code, the Werkhardts also pay around $8,629 in federal income taxes, plus FICA taxes (Social Security and Medicare) of $7,650. By contrast, the Slumps sit around sipping daiquiris and one day click on an E-Trade account that nets them $100,000 in profit, which they live on for a year. They also take the standard deduction of $24,500, but are subject to no further taxes. The Slumps “earned” $16,279 more that year than the Werkhardts.
The Carried Interest Loophole: This is the mechanism that allows money managers to pretend that their ordinary income should not be subject to taxes because the money is not their earnings, it’s their clients’ capital gains income. This can result in annual tax savings — on top of millions in income — of “somewhere in the realm of an extra $300,000.”
Pearl’s argument against the carried interest loophole is that the fund managers’ earnings are essentially income bonuses, and working people pay taxes on their bonuses. It is, he says, “an easy way to separate real patriots from people who like to get their picture taken with politicians and be lauded for their ‘patriotism’ while, behind the scenes, they sell out the country.”
The Estate Tax (Republicans like to call it the “death tax”): This is perhaps the most extreme example of how drastically the rules have shifted in favor of the wealthy in the past two decades. Between 35-45 percent of wealth in the U.S. is inherited, not earned, and the estate tax is often the only mechanism by which “taxes are levied on the transfer of wealth from one generation to the next.” The point above which the estate tax was levied used to be far, far lower. In 2001, the exemption ended at an inheritance of $675,000. It grew and grew through the intervening years, and by the time the Republicans rewrote the tax code in 2017, a pair of inheritors could receive a gift from their forebears totaling $22,400,000, tax free. Above that, you’d pay about 40 percent on each million dollars inherited.
Where does the president’s bill stand on these things? The original, extraordinarily ambitious 3.5 trillion-dollar price tag has been watered down to about 1.5 trillion, as of this writing. Passage of the bill has suffered delay after delay in the push for consensus on the details, which is likely to include a five percent surcharge on modified adjusted gross incomes of over 10 million dollars and additional three percent over 25 million.
With this legislation, the House Ways and Means Committee, headed by Massachusetts District 1’s own Richard Neal, intends to limit, but not eliminate, one particularly egregious loophole, through which PayPal founder Peter Thiel amassed five billion dollars. He’d invested $2,000 in his Roth IRA, a “humdrum” vehicle that was created not as a tax haven for billionaires, but as a means of encouraging regular folks to save for retirement. Thiel took advantage of that idea and just kept adding and adding to his tax-free account. Ways and Means’ plan would put a 10-million-dollar limit on contributions to Roth IRAs.
Other measures have been dead in the water. Proposed reforms to the carried interest loophole, for instance, the one that lets money managers off the hook for their clients’ income, had been originally included in the reconciliation bill, but were apparently killed off by industry lobbyists.