How to Tax the Rich
How to Tax the Rich
October 14, 2010
If a well-dressed stranger walks up to you at the mall and asks for a dollar, with no reason given, you’re unlikely to hand it over. But if the same person asks for a dollar and gives a specific reason, such as “…because my wallet was stolen and I need gas to get home,” you’re far more likely to hand over your money. (See the book Influence: The Psychology of Persuasion, by Cialdini.)
After the U.S. midterm election, the question of raising taxes on the rich, or allowing the so-called Bush tax breaks for the rich to expire naturally, will be hotly debated. You might think this sort of tax law would easily pass, given that 98% of the voters are not rich. But it won’t work that way. The people who pay the most taxes also have the most control of the government. So in my imaginary role as president, I fantasize about how I could convince the rich to accept higher taxes on themselves. I think the key is in how specific the president gets about the purpose for the new taxes.
As it stands, Obama’s likely proposition is that the rich will pay more taxes and the money will be distributed in some hard-to-fathom way across numerous budget categories, many of which the rich believe to be overfunded. Or maybe the tax revenue will be put toward reducing the deficit, which is a debatable and intangible benefit. Those are hard propositions to sell: “Give me a dollar and I will use it for miscellaneous.”
Now imagine that instead of proposing to spray the new taxes into the general budget miasma, the President cleverly ties the new tax revenue to one specific category, such as national infrastructure. That funding would be a clear boon to employment, at least in the long run, and no one can argue against the need to improve our infrastructure. And arguably, the rich would benefit disproportionately from any infrastructure improvements.
But here’s the best part, from a psychology perspective. Imagine that anyone rich enough to qualify for this Infrastructure Tax gets to use all roads and bridges without paying a toll for the following tax year. Each rich taxpayer family gets two of those little transmitters that go on your windshield to automatically signal toll booths that they are paid up. (We have those toll transmitters in California. I assume they will be everywhere soon.)
Obviously the rich will pay far more in taxes than they will save on bridge and road tolls, but people like any sense of privilege. I think it would make the tax increase go down easier. Every time the rich crossed a bridge they would feel special. That is clearly illogical, but psychology isn’t about logic.
Society has accepted the notion that the rich can be taxed at a different rate than other people. I think we should consider the idea that the rich should be taxed in a different fashion than everyone else too, as a purely practical matter.