If the debate over the tax deal between President Obama and congressional Republicans has shown anything, it is that the American Left really hates the rich.
Politicians often divide Americans between “the rich” and “working people,” implying that the rich don’t work for their money. Complaining about the tax deal, Rep. Jim McDermott (D., Wash.) contemptuously referred to the rich as “trust‐funders,” suggesting that most had done nothing to earn their wealth. But in reality, roughly 80 percent of millionaires in America are the first generation of their family to be rich. They didn’t inherit their wealth; they earned it.
In fact, several studies indicate that the rich work very hard for their wealth. For example, research by professors Mark Aguiar and Erik Hurst found that the working time for upper‐income professionals has increased since 1965, while working time for low‐skill, low‐income workers has decreased. Similarly, according to a study by the economists Peter Kuhn and Fernando Lozano, the number of men in the bottom fifth of the income ladder who work more than 49 hours per week has dropped by half since 1980. But among the top fifth of earners, work weeks in excess of 49 hours have increased by 80 percent. Dalton Conley, chairman of NYU’s sociology department, concludes that “higher‐income folks work more hours than lower‐wage earners do.”
Research by Nobel Prize–winning psychologist Daniel Kahneman showed that those earning more than $100,000 per year spent on average less than 20 percent of their time on leisure activities, compared with more than a third of their time for people who earned less than $20,000 per year. Kahneman concluded that “being wealthy is often a powerful predictor that people spend less time doing pleasurable things and more time doing compulsory things.”
The rich are not sitting by the pool, sipping their cocktails; they are sitting in their offices, working their behinds off.
And more important, their work often produces the goods, services, and technologies that make all our lives better. Nearly all of the modern technological marvels in our life, the things that help us live longer, reduce the amount of manual labor in our lives, or just entertain us, are the result of someone trying to become rich, and often succeeding.
We also hear constantly that the rich need to “pay their fair share.” But the rich already pay a disproportionate share of taxes. The richest 1 percent of Americans earn 20 percent of all income in America but pay 38 percent of income taxes. The top 5 percent earn slightly more than one‐third of U.S. income while paying nearly 59 percent of income taxes. One might suggest, therefore, that the wealthy already pay nearly double their “fair share.” Of course other taxes, such as payroll taxes, property taxes, sales taxes, and the like, tend to be more regressive, mitigating this somewhat. But even if you include all types of federal, state, and local taxes, the wealthy pay a higher proportion of taxes than their share of income would warrant.
The rich give back involuntarily through taxes and voluntarily through charity.
Households with more than $1 million in income make half of all charitable donations in this country. That totaled more than $150 billion last year.
The Left also makes two other contradictory claims about the rich and their wealth. On the one hand, we are told that the rich spend their money frivolously. Perhaps some do, but this ignores the fact that frivolous expenditures often provide jobs and income for the rest of us. Back in 1990, for example, Congress decided to impose a “luxury tax” on such frivolous items as high‐priced automobiles, aircraft, jewelry, furs, and yachts. The tax “worked” in a sense. The rich bought fewer luxury goods — and thousands of Americans who worked in the jewelry, aircraft, and boating industries lost their jobs. According to a study done for the Joint Economic Committee, the tax destroyed 7,600 jobs in the yacht‐building industry alone.
On the other hand, we are told that lower taxes on the wealthy won’t help the economy because the rich don’t spend enough of their money. That old‐fashioned Keynesian economics — which assumes economic growth is driven by consumer demand — ignores the fact that money not spent by the rich is not simply stuffed under millionaires’ mattresses. The savings of the rich provides the investment capital that funds new ventures, creates new jobs, and spurs innovation. The money that the rich save and invest is the money that companies use to start or expand businesses, buy machinery and other physical capital, or hire workers.
No doubt there are dishonest or unscrupulous businessmen who have gotten rich by taking advantage of others. And it’s hard to feel much sympathy for the Paris Hiltons of the world, flitting through life with a sense of entitlement that they haven’t earned. But most wealthy Americans have worked hard for what they have, pay more than their fair share of taxes, give generously to charity, and, most important, drive the economic growth that all of us non‐rich people rely on.
That’s something to remember the next time that politicians start to beat the drums of class warfare.