Ultra-Rich To Prosperous Americans: We’ll Speak For You

Ultra-Rich To Prosperous Americans: We’ll Speak For You

One of the (many) advantages to living amongst people who fall into what I described on Thursday as a “gray area” between “rich” and “wealthy” is that it gives me a window into how those folks think about life.

That’s useful to the extent it affords me a virtually limitless supply of anecdotes from a social stratum that’s often forgotten when it comes to discussions about redistributive policies, higher taxes and the Democratic agenda more generally.

The media likes to depict America has a society divided neatly along class lines. In reality, things are much more complicated.

Lots of people are poor, yes. That much is clear. A handful of people are wealthy. That much is also clear. And a couple of dozen people control around a half-trillion dollars between them. We know who they are. They’re building spaceships. Literally.

Beyond that, it gets murky.

Many people are “middle class,” but increasingly, that’s a misnomer because they struggle to make ends meet. Are you really in the “middle” if you lose sleep over basic bills?

A smaller, yet still relatively large, subset count themselves as “upper-middle class.” They finance cookie-cutter McMansions and lease mass-produced mid-sized luxury sedans in a hapless bid to project wealth and pretend they’re capital (they’re not). They do well for themselves, but aren’t immune from a financial calamity.

Another group is comprised of what I’ll call “technical millionaires.” They’ve accumulated millions over time, but they don’t boast of multi-million dollar income streams. There are all kinds of ways you can end up with, say, $4 million. Most of them don’t involve making millions every, single year. If they did, you wouldn’t have $4 million (or $8 million), you’d have $40 million (or $80 million). Recently-signed rappers notwithstanding, people with “just” $4 million in the bank don’t run out and buy a Ferrari for themselves and a Bentayga for the wife. And they surely don’t bid at any fine art auctions. That would be ludicrous. There are kids who need to go to college, there are property taxes, there are bills, and so on. Sure, all of that is easily affordable, but it wouldn’t be affordable for very long if our “technical millionaire” was buying the same cars as a Saudi prince.

Too often, this group (the technical millionaires) are mistaken for “wealthy.” I’ve argued that’s not an accurate characterization. Of all the people I’ve come in contact with over the half-dozen years since I left Manhattan for my current island sanctuary, I’ve come across very few people who are truly wealthy. There’s one Bentayga here. A white one. There are three Ferraris that I know of. Two new, and one navy blue 360 Modena (which I actually prefer to the almost bizarre-looking late models, but that’s just my aesthetic). The rest of the folks I’ve met who own homes here betray almost no outward signs of extravagance and have surprisingly “little” in the way of liquid assets. Of course, “little” is an extremely relative term, especially when your home is worth a couple of million and you still own part of a business operating in some other locale, but you get the point. I did a portfolio analysis for a lady two weeks ago, and she had just over $400,000, for example.

Why bring this up? What’s the point of more island anecdotes? What I want to emphasize is that whenever some policy proposal that would hit the wealthy lands on the front page (as it did Thursday and Friday), billionaires pretend to speak for my neighbors. They do it habitually, and it creates a false narrative, which dupes people into believing that Democratic agenda items which affect almost no one, affect nearly everyone.

I don’t want to demonize Tim Draper, but because Bloomberg ran an entire story based on his tweets, I’ll quote him too. “43.4% capital gains tax might kill the golden goose that is America/Silicon Valley,” he said. “People need an incentive to build long term startups. In California, that would be a 56.4% tax burden. >50% spells death to job creation.”

Draper is, of course, a billionaire VC. Besides being over 60 years old, he has exactly nothing in common with my neighbors. But he’s implicitly trying to speak for them and for every other “technical millionaire” in America. Note that he also equates (literally) the entire country with Silicon Valley (he wrote: “America/Silicon Valley”). How’s that for being trapped in your own bubble (figuratively and literally)?

With apologies to Tim, the vast majority of “everyday” rich people (i.e., our “technical millionaires”) don’t care whether a capital gains tax increase which doesn’t apply to them upsets a billionaire VC. And nobody with any sense about them believes that the incentive to build startups that go public with hundred-billion-dollar valuations is going to be materially diminished by a higher capital gains tax for 0.3% of American filers. That’s a ridiculous proposition.

Are VCs just going to close up shop? Will financing no longer be available to the next Instagram? Is innovation just going to die next week when Joe Biden makes it official? “Sorry Mark Zuckerberg 2.0, we’d love to invest in the next Facebook, but we’re going to have to take a hard pass because after all, capital gains taxes went up.”

The same linked article (above) quotes Michael Sonnenfeldt who, for those unfamiliar, founded Tiger 21, which Bloomberg reminds you is “a network of wealthy entrepreneurs, investors and executives with an average of $100 million in assets.” So, not my neighbors and definitely not your neighbors.

Sonnenfeldt suggested that plans like Biden’s might “create disincentives so that people hang on to assets longer than they might have.” That’s problematic, he said, because “that capital might have been better deployed in the next business that will create jobs.”

Notice how it’s always about “jobs.” None of these people are worried about their personal fortunes or about the personal fortunes of their friends. It’s purely a concern about the economy and job creation for everyday Americans.

Folks, I don’t know how else to say this: If you believe that, then you’re gullible. It’s just that simple.

On its website, Tiger 21 describes itself as “an exclusive network of wealth creators” for whom “issues of relevance, legacy, family, philanthropy, and what to do next weigh heavily on their minds.”

In the same set of tweets mentioned above, Draper said that “the antidote for oppressive government and runaway taxes is Bitcoin.”

That was at 2:30 PM on Thursday. Around seven hours later, Bitcoin fell into a bear market.


20 thoughts on “Ultra-Rich To Prosperous Americans: We’ll Speak For You

  1. While we will never see a 40% cap gains rate I am increasingly ill about rhetorical lies that fly about when any public policy issue is discussed

    When the SALT cap was originally proposed I was opposed because [reasons] even though with other tax changes it didn’t impact me at all. I changed my mind when some bright friend pointed out that SALT deductions were nothing but a mechanism for low tax states to underwrite high tax states. Federal tax policy should be agnostic with regard to state or local tax policy.

    Listening to some Democratic senator from New Jersey on CNBC this morning he complained that he could not support a cap gains increase without a repeal of the SALT cap because ‘property taxes in New Jersey are $15,000’

    The hypocrisy of a Democrat lobbying for the reinstatement of a regressive tax aside, it seems that if property tax in New Jersey is $15,000 this is a distinctly New Jersey problem and a problem that New Jersey is fully capable of addressing

  2. My thought process has shifted dramatically in the past 6 years regarding taxation and the government’s responsibility of a social safety net. Mostly, because I am now retired and my 3 kids are all STEM educated and self-sufficient- this frees me up to learn, study and think about other topics.

    If we, as a nation, can elect better/smarter leaders who can represent the vast majority of Americans- we can move forward to provide a better social safety net- better quality of education, better healthcare, better unemployment benefits and actually protect our oceans, air and land for future generations.

    The budget for the country can be paid for from 3 sources- Print money, borrow money from third parties and use taxation to redistribute money that is hoarded in places where it does not move through the economy effectively.
    Smart leaders ( ie Janet Yellen) can make good decisions about how to fund the government to balance risks ( too much inflation, damage to reserve currency, foreign currency exchange rates etc,) so we don’t damage our democracy, rule of law, economy, etc. – the USA is still a pretty great place to live and work.

    I only know (well) a dozen people worth over $100M- I live in a ski town. Based on what I know about them, this proposed tax would change nothing that they do. The much bigger issue is what Biden will do with the Federal estate tax exemption. However, even if the exemption goes to $0.00, I seriously doubt they will relocate to Malta or any other “tax free” country. They want to live near their families and friends- and enjoy their life.
    My confusion at this juncture is why the Democrats aren’t focusing on improving the social safety net first?

  3. My first graduate school Finance told all his students about his three financial rules to live by:
    1. Something is always better than nothing (and more is better than less)
    2. Uncle Sam never gets it all.
    3. If you can’t make 6% on your money, drink it.
    Probably as good a set of rules as any.
    My financial advisor, in response to a question about how rich I’d have to be to get noticed by my private banker, told me $50 mil was a realistic threshold. There are lots of parties that number still won’t get you invited to but it does allow you do do most of what you want. For me the technical status was a better goal because it kept my annual taxes down. I won’t be paying those higher gains taxes, even if the Dems manage to pass them. I do know that the SALT cap and the 3.8% taxes are costing me an extra $9k this year. Thanks for the nice tax “cut?” Mitch.

  4. Yes, though I also see the Tiger 21 guy pov. People with $100M aren’t exactly measuring up to demigods like Bezos or Gates.

    I’m for taxes following an exponential curve. Gates shouldn’t decide the fate of Africa all on his own. If he wants that kind of power, he can run on a specific program and get himself elected. Ditto Musk, though I’m a bit more lenient there b/c I approve of Mars colonising and neurolinks and electric cars and governments have shown little to no interest in recent decades in delivering those technologies to the public (and cutting edge stuff in general).

    An exponential rate takes care of the differences between upper middle class, “rich” and wealthy. (NB: I’d have switched wealth and rich, tbh. I’m not a native English speaker but, for me, wealthy is, like, (meaningfully) well off and rich is, like, uber-rich)

    1. Bill and Melinda Gates have probably done more for Africa than any other country, person or group of people. If Africa had to wait around for the world to help them, the continent would be even worse off than they are now.

      1. How did Africa get to be the Africa we know today? because of what the world (mainly colonizing Europeans) did to/for them. If one learns anything from history it might be to not wait around for the pillagers and rapists to lend a helping hand.

    2. Emptynester – one, that’s somewhat debatable (the Green Revolution powered by Norman Borlaug might have had more of an impact) but, two, even if what Bill Gates is doing is an unalloyed good (I kinda disagree but it’s not relevant here), this is still something that ought to be achieved by political, ideally democratic, means.

      I didn’t even mean the rest of the world. No one in the Western world gives much of a sh*t about Africa (well, not if it’s going to inconvenience anyone) BUT Bill Gates could have tried/should have tried gaining power in Africa. Get Africans to choose him. If he couldn’t/wasn’t interested, then, on which principle does he interfere with the ‘natural’ course of events there?

      Quick one on the “worst off now”. Depends. If you put the quantity of human lives as your highest good then fair enough. Personally, I don’t. I think the quality of the life humans live is more important than the quantity.

      So – Bill Gates saves lots of children. Boyaa! Good for him. But since they still exist in failed, corrupt, tribal, clunky, ineffective states, they don’t get the education they need, they get (possibly, very likely) religious bs instead and stretch the local resources and next thing you know, you’re contending with another ISIS or Boko Haram or Lord’s Resistance Army or Tutsi/Hutu genocide or another Somalia or Syrian collapse (check climate change leading to that particular civil war).

      I won’t be the first one to hypothesize that all wars, at their core, are about overpopulation pressures. It’s an academically touchy subject but the idea of Thanos and his philosophy in the MCU universe didn’t spring from nowhere.

      https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2781832/

      Let’s not even mention Nazis and Lebensraum b/c they believed they needed land but, really, didn’t. Still, just the belief/fear of lacking vital space was enough. What’s likely to happen when that fear/need is real?

      1. I think that the Earth’s number one problem is too many people. In my opinion, the best way to get to a sustainable level of human population is to expand healthcare (including providing birth control), education, advance women, provide clean water and sanitation, elevate farming technology, provide small loans for people to start a business. This will raise the living conditions, which will result in women wanting less children.
        This is what the Gates Foundation is working towards- they do not mention that there are too many people- but they are very smart and have to understand the long term implications of their efforts in Africa.

        1. Maybe you’re right. I’m not going to pretend I follow Bill Gates’s foundation efforts uber closely.

          BUT I do move in circles that love effective altruism (while not approving of it myself) and they emphasize the foundation efforts with mosquitoes nets b/c it has the highest cost-to-benefit ratio – IF your benefit is defined as “lives (esp. children’s) saved”.

          What you mentioned – expand healthcare (including providing birth control), education, advance women, provide clean water and sanitation, elevate farming technology, provide small loans for people to start a business – isn’t happening NOT b/c we don’t know how to do it. It’s not happening b/c local power equilibriums and local ‘winners’ are refusing to implement these known solutions.

          If it is not in their self- interests, then all the goodwill and charity dollars in the world won’t make a dent. It’s a political problem. Hence, Bill Gates should seek to seize power (democratically, ideally but revolution and elimination of present day elites ought to be morally allowed – that’s how the UK, the USA, France etc. did it)

          And working with corrupt self dealing elites who like the status quo well enough to beg them to implement some modest version of the policies you describe and calling it successful charity is a dead end. It’s been so since the 70s and it’s their very failure that gave rise to the effective altruistic movement.

  5. The tax on the top .3% is an attempt to “fund” social programs and at the same time take a stab at income and wealth inequality. Always when a Democrat proposes this there is a hue and cry about class warfare. When it is the reverse, like in 2017, remarkably cutting taxes for the wealthiest is not class warfare at all! Paul Ryan could tweet about a secretary getting a $3 a month tax cut (with a straight face). As far as the SALT tax goes, for years Republicans espoused a philosophy of federal government not getting in the way of state raising money. Except when they needed to extract revenge/punish blue states for their tax structure and votes. All of a sudden that went out the window. The pernicious effects of knee capping blue states, which by the way fund most of the red state subsidies with extra taxes at the federal level, has lead to wealthier folks leaving the blue states to take advantage of lower taxes in a race to the bottom for tax effort. And hurts their tax base. It is in effect telling blue states to cut services to lower their taxes to compete with lower income less educated red states. Well maybe the right answer is to dramatically raise the SALT cap rather than eliminate it. But property taxes alone in NY and NJ usually exceed 10k. Guess what the primary use of the property tax is? (California capped their
    property taxes so their high taxes are sales and income taxes- same result though).That ‘s right folks- education! So the educated kids can help the rest of the country’s tax base, because they end up innovating and working in high paying jobs. Talk about dumb policy, huh! So yes the SALT cap needs to be either eliminated or at least raised.

  6. This morning on CNBC a financial “expert” regaled us with all the terrible ifs and buts of all the extras that might be added to the tax depending on where you lived. To listen to him, nobody would buy stocks again and everyone would end up living in homeless shelters. To end up he claimed that he couldn’t see how this tax could work with Yellen wanting an international agreement on a basic tax level. This “expert” was totally ignorant of Yellen’s aim for an agreement on a minimum Corporate tax, not personal tax..

  7. Perhaps the USA should look at the tax rate and support for people that reside in countries where the citizens are happier than in the USA. Some of the Scandinavian countries come to mind, No need to reinvent the wheel, just look at what works.

  8. I don’t like generalizations (an Aldous Huxley piece convinced me of that), but the ‘wealthy’ cry the loudest should someone try to pry a buck from their strongholds for the common good. Not surprising since they are in control and are hellbent on keeping it that way. ‘It’s good to be the king’ or so I’m told.

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