Making the rich feel better

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With the debate over the flood levy degenerating into silly philosophising about having new taxes or not, a timely discussion in this weekend’s WSJ from Scott Adams about how governments tax the rich. The flood levy is basically saying that the richer half of the country should pay for part of the Queensland flood reconstruction; the other part coming from reallocation from other programs whose distributional consequence is harder to parse. Adams wonders whether governments might have an easier time in taxing the rich — something the pretty much always needs to be done as that is where the money is — if they thought more about ‘fairness’ and making the rich feel better about their contributions.

The article has a whole lot of ideas — most of them admittedly bad — about how to make the rich feel better about parting with their money and getting little of substance in return. But what it fails to do is recognise that the private sector has already worked out how to do this. The rich are willing to part with ridiculous amounts of money for not much. Think about fashion, luxury hotels and in-built GPSs in cars. None of them are worth it. But yet they florish.

The best example of this is, of course, loyalty programs in all of their forms. You get the rich to pay more for stuff but from the same company and they get rewards. In the case of airlines it is priority boarding, more frequent upgrades, a better place to wait for planes with ‘free’ lattes (go on, calculate that cost why don’t you), etc. The rich like the status and don’t think too hard about the cost.

Charity functions work the same way. Call something a contribution to charity and you can ‘sell’ it for 10 times the amount. Make it social and the returns are even greater.

The problem with the flood levy is anything that you can think of looks sort of bad. The rich get something cool, overpay for it, all in the name of helping out those who have lost stuff. Charity somehow gets around the contribution but on this scale the whole notion of a ‘flood levy’ is an issue.

So where can we raise $1.8 billion; basically getting 180,000 people to cough up $10,000 each. Well, for instance, there are currently 200,000 people on the Melbourne Cricket Club waiting list. It currently has 100,000 members. Can you see where I am going here?

Take all of the capital city cricket clubs and impose a tax on membership. It is an exclusive club for a national past-time. The members earn a surplus from being members to that exclusive club. Getting membership is like getting a mining license.

So the law would be — and I have no idea if it is constitutional — if you want to be able to be a member of any of these clubs you need to first earn yourself eligibility by being a frequent contributor to the Australian public good. If you engage in real charity work, that can qualify you. Otherwise, by contributing to a fund — say the Flood Reconstruction Fund — you can qualify; say, a contribution of $10,000 over five years. You get a card and recognition. And that is a requirement for being considered as a member of these exclusive clubs.

Fiscal problem solved. No new tax needed. You’re welcome.

4 Responses to "Making the rich feel better"
  1. “governments might have an easier time in taxing the rich — something the pretty much always needs to be done as that is where the money is”

    A common mistake.  Given the shape of the income distribution the big money is in the middle classes – ie around the median voter.  By all means soak the rich on other grounds, but don’t think it’s going to raise all that much revenue – there ain’t enough of ’em.

    The US is a partial exception to this, because of the extreme concentration of wealth there.

  2. It’s also a mistake to assume all MCC members are rich.  I’m sure you’d find many wealthier members at exclusive golf clubs around the country (with membership costs far exceeding anything charged by the MCC).  The MCC is exclusive because of the waiting time and not the membership fee (which is one of the wonderful things about it) – a qualifier of $10,000 in contributions over 10 years would make it an exclusive club for the more wealthy – better to add a tax to the corporate boxes made available at these games …

  3. “Given the shape of the income distribution the big money is in the middle classes”

    I guess it depends how you define “the middle classes”.

    I’m taking middle class as incomes roughly $30K to $80K based on the Australia Institute’s paper “The State of the Australian Middle Class” from October 2007. (No personal preference, it’s just the first one I could find on google which quoted figures).

    From the latest stats I could find on the ATO’s website (Taxation statistics 2007-08, Table 14, Part A), roughly 3% of all personal income tax collected was paid by those with taxable incomes under $30K, 43% by those between $30K and $80K, and 54% by those on over $80K.

    So yeah, there’s over 40% of the tax paid by “the middle class”.

    But there’s even more paid by the group above them (presumably “the upper class”).

    And that’s also concentrated mostly at the higher end – around 11% from $80K to $100K, 24% between $100K and $250K, and 19% on $250K or higher.

    So those declaring incomes of $100K or higher pay more tax in total than “the middle class”, despite there being far less of them. Which makes them a pretty easy target.

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