Numb. 1121 Taxes (or Submitted For Your Approval)

Three Amigos

I want to pay taxes. I love this country. — Irving Berlin

Stumbling and Mumbling

January 01, 2016

Irving Berlin on taxes

The New York Times reports on how some of the US's richest men are dodging taxes. Compare this to the response of Irving Berlin when his lawyer offered him a tax shelter:

I want to pay taxes. I love this country.

He even wrote a song expressing this sentiment.

He said: “I owe all my success to my adopted country.” Had he stayed in Russia, he might well have died in a pogrom or the civil war. And even if he had lived, he certainly wouldn't have heard the jazz and ragtime music in his youth that inspired him to become a songwriter.

He embodied - knowingly so - a point made by Herbert Simon, that we westerners owe our fortunes not so much to our own efforts but to the good luck of living in societies which enable us to prosper - which have peace, the rule of law and material and intellectual resources:

When we compare average incomes in rich nations with those in Third World countries, we find enormous differences that are surely not due simply to differences in motivations to earn. Laziness is not a principal cause of poverty. A more plausible explanation for the differences, in fact the explanation that is universally put forward, is that much greater resources per capita are available to some countries than to others. These differences are not simply a matter of acres of land or tons of coal or iron ore, but, more important, differences in social capital that takes primarily the form of stored knowledge...
When we compare the poorest with the richest nations, it is hard to conclude that social capital can produce less than about 90 percent of income in wealthy societies...On moral grounds, then, we could argue for a flat income tax of 90 percent to return that wealth to its real owners.

Now, songwriting is pretty much as individualistic an activity as one can find; But even songwriters require a conducive environment such as musical traditions on which to draw and a marketplace for their work. Berlin knew this: 1930s Siberia had no equivalent of Tin Pan Alley or Hollywood.

If even songwriters owe their wealth to social capital, how much more true is this of hedge fund managers.They would be nothing without wealthy investors or large liquid financial markets: how many billionaire fund managers are there in Burkina Faso?

Which poses the question: why, then, don't hedge fund managers have the same attitude to paying tax as Irving Berlin? It could be that they are more motivated than he was by personal greed. But there might be another reason - unlike him, they believe their wealth is the product of their own "talent" and so they are entitled to it. Some might call this neoliberal ideology - the idea that we are the architects of our own fate. Others of us prefer to call it an example of one of the disfiguring diseases of our time - narcissism.

Perhaps there's another explanation, though. Maybe hedge fund billionaires are greater geniuses than Irving Berlin who have contributed more to human happiness. But how likely is this?

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