Inside the Upside Down → Passive Regression → Estate of Play

Hey Neighbor. Two women stand in the line for coffee at Behind the Bookstore on Martha’s Vineyard.  “I couldn’t find anything sub-$1000-a-night on AirBnB so I found friend of a friend who was in Europe,” explains the one wearing a Patagonia Synchilla around her waist. “I still have to pay for his place, but it’s decent.” Her friend shrugs. “Gotta have a network.”

“Gotta use it,” says the first.

➺ This is a SPECIAL ISSUE ABOUT TAXES. We wanted to do something timely and also honest about justified resentment among high-earners. 

➺ Thank you to those who have given advice on this business via our (ongoing) Audience Participation Survey. Your insights will inform what we do next!

➺ It’s Prime Day. We would make a big rec list, but you’re just gonna buy Apple AirPods.

➺ Teach a man to fly-fish and he won’t shut the fuck up about it.

The “Self Presentation” Survey is an attempt to understand how members of the Oat Milk Elite strategically share (or don’t) personal information in social situations in order to seem normal, cool, relatable, or w/e. Full results will be shared exclusively with Upper Middle Research members and those that complete the survey.

MONEY ❧ Filing Pains

Some Americans see taxes as patriotic. Others see them as optional, immoral, or insulting. According to Ruth Braunstein, a scholar of religion (and occasional Substacker) who studies taxation as a ritual, these (invariably strong) beliefs ladder into a manichaeistic conception of taxation as sacred or profane. 

Upper Middle spoke to Braunstein about why argument for profane is winning. The conversation has been edited for length and clarity.

The old phrase you borrowed for the title of your book – My Tax Dollars – is odd because the point of taxation is that they aren’t my dollars. Why do we think we retain some kind of ownership over government money?
The anti-tax movement has successfully framed taxation as a profane threat to something sacred: individual freedom. The argument is profoundly effective because we live in a consumer society. We equate our tax payments to other monetary exchanges we have individual control over. We want to ensure we're getting a good ROI. This leads to a transactional view of citizenship, where people want to know exactly what they're 'buying’ and has been so popularized at this point that progressive politicians hesitate to make a moral case for taxation.

Property taxes are frequently seen as profane, which makes sense in the Lockean^[2] sense of… “Why am I paying for land I own.” The anti-tax movement arguing that income taxes are a similar infringement on rights seems kinda loony. How do they get there? 
Fundamentally for a lot of libertarians, it comes down to our time and our bodies. It’s not uncommon for libertarians to say something like, ‘In an economy where we are required to labor in order to earn money, our money is a reflection of how we are spending our time and our bodies.’ Some go as far as claiming money has no other inherent value^[3] and therefore is worthless and can’t be taxed. Others equate the income tax with slavery and use that word knowing its history in the United States.

The IRS Building has an Oliver Wendell Holmes quote on it: “Taxes are the price we pay for a civilized society.” That’s what we’re buying. But I’m not sure we all believe we live in a civilized society. Is that part of why pro-tax politicians went extinct?
Maybe, but I think it's important to keep perspective. We live in a miraculous civilization – we have access to books and art and luxuries historically reserved for royals and the clergy. Also, even though politicians aren’t pro-tax, Americans aren’t necessarily anti-tax.

Sure seems like we are…. What’s the evidence to the contrary?
Americans voluntarily pay their taxes at a very high rate without direct enforcement. People fill out forms and submit them on time. Nobody goes door-to-door with a gun collecting taxes. This reflects a belief that the tax system is legitimate – that we expect to get something in return – and the belief those who don't pay will be punished. That said, those beliefs can be challenged. That does seem to be happening right now.

Readers of this newsletter are mostly high-earners paying higher effective rates than oligarchs. Why isn’t this a big part of the conversation?
Progressive, liberals and even moderates who make good money and feel, rightly, that they are being disproportionately taxed compared to wealthier individuals who exploit loopholes feel a profound sense of moral frustration. They understand the need to disaggregate high income earners from the extremely wealth, but that’s a culturally difficult conversation. No one wants to hear that a person with a million dollar home isn’t rich even if it’s true.

➺ Ruth Braunstein is the author of My Tax Dollars: The Morality of Paying Tax in America, which is much funnier than you might expect.

MONEY ❧ The Upside Down

Americans support progressive taxation. But what we have is a regressive system shaped by lobbying and resentment that allows the very wealthy to avoid paying what most workers view as their fair share. This has happened, according to MIT professor Andrea Louise Campbell, in part because Americans support progressive taxation, but not progressive taxes. 

Upper Middle spoke to Campbell about how the hell that happened. The conversation has been edited for length and clarity.

In your book, Taxation and Resentment, you say the tax code is “upside down.” What exactly does that mean?
In the abstract, Americans embrace the notion of progressive taxation. That should translate to support for federal income tax, state income tax, estate tax, and capital gains tax. But these are the taxes that ordinary, non-rich people want to see decreased. Most Americans are more accepting of regressive taxes like the sales tax, which hits the bottom two-thirds of Americans harder. The bottom two-thirds of American earners pay more in sales tax every year than federal income tax, but unless they keep track, they don’t know it. Also, they feel like they can control it buy not making purchases whereas they feel no control over other forms of taxation.

The estate tax is an interesting case in upside down thinking. Why aren’t large exemptions that only help very rich people politically unpopular?
People think the estate tax is widespread. They don't realize it hits a couple thousand estates per year out of the two million Americans who die. But the real issue is that people extrapolate from personal experience without understanding that their experience is nothing like the experience of super wealthy people. People hate the property tax because they think of home equity as savings. They say, ‘My income was already taxed. This is double taxation.’  They have similar feelings about the estate tax even thought without that tax there’s often no taxation on wealth because a lot of very high net worth people have unrealized capital gains. 

Similarly, lower corporate taxes are popular even though most people don’t benefit appreciably from those cuts. Why are those cuts popular?
Again, people extrapolate poorly. Regular people admire small businesses. They don’t think of small businesses as a designation including businesses that make tens of millions of dollars a year. So when they hear that there's going to be a tax break for small business, they think that's terrific – good for job creation. They're not thinking of  S-corps where 70% of the benefit goes to the top 1% or C-corps where it’s even more extreme.

The Upper Middle in this country disproportionately consists of people who did what they were supposed to do – good schools, brass ring jobs – but the tax code actually penalizes them for it. We’re a privileged group. Can we be angry without being unreasonable? 
What's interesting to me about high earners is that have a real reason to resent taxes.  Lower income have been removed from the federal income tax system because of the EITC. The very rich have been removed via tax breaks and loopholes. Salaried people with brass ring jobs have W-2s^[4] so it’s really hard for them to get out of taxation or shift their source of income such that they’d pay at a lower rate. They're the ones who have been left holding the bag. 

A lot of people in this group were born into relatively wealthy households and expect to inherit money as part of the so-called Great Wealth Transfer. Do you think the estate tax cuts are a path to relief?
Not really. Will inheriting money be  life-changing for some children of boomers? Yes, but not most. And I suspect many will be surprised by the income taxes owed on IRAs. 

➺ Andrea Louise Campbell is the author of Taxation and Resentment: Race, Party, and Class in American Tax Attitudes, which might make you want to throw a small, tasteful riot.

[2] Unpopular political opinion: Property taxes kinda suck. Renting something you own from the government feels wrong. Obviously, it’s nowhere near that simple, but it’s an anti-tax stance that is consistent with America’s founding documents.

[3] There’s an extended section of Ruth’s book about libertarians who call dollars “Greenies” and insist they have no value because they aren’t backed by gold. Say what you will about libertarians… they’re a fucking hoot.

[4] Part of the reason this publication exists is that it’s much easier to make money operating an independent business (if your wife has the insurance covered) than it is to make money in a prestige-oriented field like journalism by climbing the ladder. That’s purely to do with taxes, TBH.