Todd Henderson’s Argument Against Taxing the Rich

A response to economist J. Bradford DeLong’s commentary on Chicago law professor Todd Henderson’s argument against taxing the rich. Henderson argued that even though he and his wife make between $250,000 and $450,000 per year (depending on how you count it), they have such high expenses that they cannot afford some further luxuries or to pay more taxes. The conservative Chicago law prof’s argument was not well received in the blogosphere, but it was very revealing.

To DeLong & JayC (who complained about low economic literacy and class anger in the blogosphere responses to Todd Henderson): I find these comments on DeLong’s blog, however, fairly interesting. Elsewhere, there’s a lot of unpolished working class anger (unpolished because there are insufficient labor institutions to cultivate them), because most people endure excessive top-down class warfare. As the social epidemiologists observe, we are not a species that can well tolerate (psychologically or physically) high inequality.

Many commentators here, who have fairly good grasps of economics, insightfully point out that society should not be expected to fail to pay for scheduled, needed collective goods and services just to accommodate Henderson’s impecunious choices to incur large debts, forego collective services, and accrue huge assets and savings, as befits a man who is setting his standards only upon those of super-wealthy administrators and capital managers. DeLong’s point that Henderson’s is the psychology of entitlement that accompanies increasing inequality is very germane. It is why increasing inequality begets demands for further increasing inequality, and it is part of why increasing inequality leads to declining happiness. It is why capitalist societies, dedicated as they are to concentrated accumulation, need countervailing forces, such as progressive taxation at the very minimum.

One thing that most (but not all) economically-savvy commentators are overlooking, or unfamiliar with, is that in the context of rapidly increasing inequality, we have had rapidly increasing asset prices in the Anglo-speaking countries. Commentator Maynard Handley’s point about positional goods is spot-on and deserves emphasis: If the rich are not adequately taxed, they will use their excessive discretionary income to push up the price of positional goods. Consider further that under the inequality-fueled rapid expansion of positional goods prices, multiple market goods and services that once worked passably as socially-desirable investments transform rapidly into multiple horrible albatrosses (eg. very expensive educations and houses). A rational economic action turns into an irrational decision as inequality soars around you. Most people cannot respond by changing course fast enough because they don’t have access to a framework to explain what’s happening.

It’s not only the fact that he only looks “up” in his lifestyle aspirations and in his sense of entitlement, but also that Henderson’s conservative economic paradigm could not prepare him for this problem (he was expecting instead to twirl, twirl, twirl toward freedom) that is why he is such a terrible money manager–that is why he doesn’t see that his freedom is constrained by the free market, so that he needs to be making a harder set of either-or choices with how he spends his money. His money management problems are real and are characteristic at some level or another of those of many Americans. In the midst of the heady market triumphalism, and the ideology that each American generation would by the hand of Almighty Capitalism see material progress, there was no way that most people could step into a quiet corner and rationally calculate how impossible paying multiple, de-socialized, inflated asset costs would become, for example (Though cheers to those outliers who did! It must feel good to have been an iconoclast). For the most part, though, we’re only human. Social, social humans.

Our problem right now is that it is far, far too facile for conservatives who are trapped in the inequality cost-spiral treadmill to press for policy that simply greases the treadmill they’re already slipping on–to demand low taxes and the evisceration of non-military public, collective goods and services that support and limit the costs of non-elites’ biological and cultural reproduction within capitalism (as for example public health care does in other affluent countries). For all but the top .01%, low taxation exacerbates and does not solve money management problems.

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