Taxes and Charity

      Advising the Exceptionally Affluent is the subtitle adorning the cover of Private Wealth. This magazine describes itself as being “for the professionals focused exclusively on meeting the financial, legal and lifestyle demands of the ultra-high-net-worth clients.” While I can't count myself among this demographic, the article that most caught my attention in the March/April issue is titled “Taxed to the Limit”. Though Caren Chesler, the article's author, doesn't take a clear position on whether the tax code needs reform, she seeks to explain why “many rich Americans still feel they're being asked to surrender too much of their wealth to Uncle Sam.”

      I thought that perhaps here, I could cut through the political rhetoric and find out what is really going through the minds of the wealthy. The most popular argument for cutting taxes on the rich heard in the political theater is that doing so will create jobs. We are thus led to believe that these tax cuts have little to do with benefiting the rich themselves, but are in truth intended to benefit the working class. Another cry heard from the right in response to the 'tax the rich' slogan is that this is class warfare. I've yet to hear a coherent explanation as to why class warfare is a bad thing (at least for the class that's not in power).

      Chesler's article does mention the supposed job creation, but it also highlights the claim that higher taxes result in less charitable donation. “From what I've seen with this crowd, they want to give back but not in the form of higher taxes. They want to do it with charitable giving,” financial adviser Alexander Maguire Jr. is quoted as saying. The article gently leads us to believe that the rich don't mind giving away their money, they just don't want the government to be the recipient.

      I was suspicious of this supposed generosity of the rich, so I did some investigation. I recommend reading “The Charitable-Giving Divide” by Judith Warner and published in the New York Times. Here is the basic summary: as a proportion of their income, rich people donate a lot less than the rest of us; even when they do give, it tends to be to cultural institutions and colleges, which impresses their piers, but does little to help the poor; psychologists studying this paradox say that the lower class is “more attuned to the needs of others and more committed generally to the values of egalitarianism.” According to the article, a 2001 study “found that households earning less than $25,000 a year gave away an average of 4.2% of their incomes; those with earnings of more than $75,000 gave away 2.7%.” It seems the rich aren't so concerned with the mode through which their money is redistributed. What concerns them is that they don't think the less fortunate deserve their help.

      Taxation is, to a large extent, the epitome of the front line of the class war. Taxes affect everyone, and class tends to be the greatest factor in determining how they affect you. The year 2010 should go down in history as the year we learned that with a Democratic House, Senate, and Presidency, the Republican agenda still shapes policy. It was concluded elegantly on December 17 when Obama signed the continuation of the Bush tax cuts into law. We should expect that, in 2012, the right will once again tell us how insane it would be not to extend these tax cuts again. Hopefully by that time the working class will stop begging, and start demanding.