Are the Rich Taxed enough in Puerto Rico?

    A recent debate on Intelligence2 (squared) dealt with upper income taxation levels in the United States, a debate principally between Arthur Laffer (the man behind Reagan's supply-side economics) and Robert Reich (Bill Clinton's Secretary of Labor).   I am no economist, but I was somewhat taken aback when the two distinguished speakers seriously disputed the economic impact of taxation, perhaps a presumption encouraged by the narcissistic tendencies of the communities they represent rather than the actual dynamics of the real world. No one would reasonably suppose that taxations levels are directly correlated to economic growth--except perhaps their most extreme forms as those found prior to the French Revolution.  (A more obvious indicator might be technological change, which has a much more direct impact on economic health (productivity) than do taxes.)  There is simply no direct historical correlation between the two, because of the enormous complexities of economic dynamics.[1]  To try to do so is, borrowing a historical cliche, to confuse correlation for causation.

    Perhaps a more interesting question, at least locally, is to apply the same debate here in Puerto Rico, where median incomes are usually a third lower than those found in the United States, and where the GINI coefficient is far higher than that of the poorest state 'in the union'.

    The answer is quite obvious: the rich are grossly under-taxed in Puerto Rico.  However, this claim is made for the reasons you might not have considered.  As with all observations pertaining to complex matters, this one has many qualifiers that must be considered before accepted on face value.

    There are the rich, and there are the 1%

    Discussions like these tend to be overly generalized and vague with regard to their actual subject matter.  All too often, the 'rich' tend to be presumed to be those who make a million dollars or more per year: grand pachas who live in castles in the air and drive Mercedes to the local Hardeys.  But in fact, statistics of wealth in the United States indicate that the vast  number of 'wealthy individuals' cluster around the ballpark figure of $200,000.  Our  napkin 'economic calculator' would roughly put this at around $132,000 income per year for the local puerto rican median 'wealthy' status.  

    While that might seem like a great deal of money to a person working at McDonalds, or even a humble college professor who earns just about as much down here, the fact of the matter is that individuals in that 'rich cluster' are rarely sitting down  sipping on margaritas, scratching their behinds, while the dollars 'pour into their fat coffers'. Just the contrary. Any fair acquaintance with this social group knows that this money is earned simply as a result of the large number of responsibilities they shoulder.  More often than not, they are usually small business owners who run relatively successful organizations, but tend to have more on their plate than they can actually handle.  Their sole focus tends to be their job, the services provided, the products delivered, usually at the expense of much else: family, friends, and the 'inner life' of the mind or the spirit. 

    Naughty, naughty

    Yet an even more important distinction needs to be made.  It can be noticed that the underlying presumption of both Reich and Laffler was that excess wealth would find its way into enhanced productivity, either by individual retention (Laffer) or by government disbursement (Reich).  Reich's and Laffler's is a thinking that is so restrained by the blinders of academic specialization, that they never consider how such spending might actually fall outside the realm of 'the economic', the 'fiscal' or the 'engine of economic activity', and spill over into the 'social realm'.

    The principal reason why the very rich--those who earn $1 million or above--do not pay enough taxes in Puerto Rico, is that these enormous disparities of income tend find their way into the disdainful abuse and repression of their co-citizens.  The GINI index, rather than a measure of income disparity, is perhaps the MOST ACCURATE gauge of the pervasiveness of social repression (breaches in civil liberties) in any given society, as might be well attested by the colonial history of slavery.  (Is it any wonder that the news show 'DemocracyNow!' has vastly grown in audience as the GINI has increased in the United States during the last 40 years?)

    Those who earn north of $1 million per year range essentially have the disposable income available to purchase an army to do their bidding. Whatever illicit purpose that might be, these hold onto a vast number of retainers,  from the lowliest thugs and economically displaced individuals who threaten and harass to murderous professionals--nurses and medical practitioners; the retainers eventually extend down even to 'secondary minor-bit players' as arquitects, planners, historians, photographers who might falsify and deceive in order to gain favor or insure employment/status.  "Need someone neutralized?" Done.  "Need to make a vociferous protestor pray for their life?"  Taken care of.  The rich man from a poor third world society has a vast army at their fingertips to commit the most atrocious crimes, an army which also distances him from the consequences of the decisions taken because of the long and complex social links between the deed and its true assailant.  With the death of a colleague, a spouse, or a 'con-ciudadano', a banker's "moral hazard" obtains a shocking new meaning.

    While this might all sound preposterous in the United States, we might return again to the objective and distanced stance usually taken by the practitioners of the 'dismal science' (economics).   What we might refer to as the 'morality distribution', the propensity for an individual to comply with professional and ethical standards, is simply a function and/or byproduct of the overall broader socioeconomic dynamics they find themselves in.  The broad prosperity in the United States, relatively speaking, merely means that the median point of this distribution curve will be skewed to the low end--a point which is often falsely projected to be an absolute 'norm' /'normal' across all societies.  The pervasiveness of noxious 'lacayos' (as they are called down here) in Puerto Rico is merely a function of an excessively 'competitive' economy, where the prospect of a stable future income is low and the criteria for social ascent is ambiguous and poorly defined--itself a byproduct of the overly strong link established between electoral change and job availability.  (Puerto Rico's religious propensity for politics has severely undermined its grasp of modernity.)  The habit of 'welfarism' also encourages the 'shortest path' to income, wherein that path cuts across important moral and ethical barriers that would have otherwise made for a longer and more uncertain personal outcome.

    One might point out that these dynamics also exist in the political realm, but they are usually hidden by the structural dynamics of the political process in modern democracies. The inherent 'instability' of politics--the need for elections every four years--is an important mechanism which prevents tyrants, and their consequent brutality, from emerging.  (They are never in power long enough to become tyrants.)  Yet the economic realm often has no such checks, notwithstanding Joseph Schumpeter who pointed to the short longevity of modern corporations.  For him, all corporations must, like biological animals, die at some point. 

    However, when deep seated historical forces converge--the modern corporation and medieval institutional codes of behavior--they set the scene for nefarious outcomes.  The inability for certain corporations to 'die' morally requires the state to guarantee that income disparity will not used as the means and as the pretext for wanton violation of civil rights that are seldom traced back to their true source and/or point of origin.  The surest ways to do this is to prevent the obtention of its means and justification, in the first place.  Taxes: 90% on the very very very very rich ($1 million plus). 

    A $100,000 per year income is still a fair amount of money and a decent wage. If you don't believe so, just ask the other 99%.

    NOTES

    1. In the post WWII period, when taxes for the very rich hovered around 90%, the US experienced one of the largest economic booms of its period; while the roaring 1920's were also a period of tremendous economic growth with incredibly low tax rates.