How to Fix Almost Anything


December 4, 2006


Browse in Taxation

If a problem can be fixed, there’s a way practically to guarantee that it gets the attention it needs.  Just make sure that wealthy and important people have to suffer from it too. Junk faxes became an issue in Washington because Congressional fax machines were loaded with them. Magazine editors in New York became interested in ocean dumping when medical wastes and the like started showing up on their beaches in the Hamptons.

To put this another way, when big shots can glide through life in gilded cocoons, it breaks the social feedback loop.  Those in a position to do something about a problem do not feel an urgency to do so.  This, and not class envy, is the true reason for concern about the wealth gap in America; and is one reason why maintaining an estate tax is so important.

I was reminded of this recently when I came upon an article in the Wall Street Journal(Nov. 30, 2006) about a fitness entrepreneur by the name of Augie Nieto who is suffering from a degenerative disease. Nieto founded the company that makes the Lifecycle equipment used in many gyms.  He sold his stake for  $310 million in 1997.  Seven years later he was diagnosed with amyotrophic lateral sclerosis, or ALS — better known as Lou Gehrig’s disease, because it brought the baseball great to a sad and early death.

There is no known medical cure for ALS.  So now Nieto has become a major funder of research into it.  This makes him, the Journal observes, “one of a wave of wealthy patients”  bankrolling cures for diseases from which they suffer.   The Journal doesn’t mention others.  The names Michael J. Fox and Michael Milken come to mind.

This is both admirable and understandable.  We naturally get worked up about the things that rattle our own cages.  Potentially it is a mighty social force; but it goes untapped when the rich and powerful are exempt from the problems that most Americans face.  If every CEO in America had to fly economy class, send their children to public school, and deal with computer help lines themselves rather than have gofers do it for them,  the quality of life in America would increase measurably.

If the very rich had trouble getting medical insurance they would show as much concern for that problem as they do for the diseases they themselves contract. This basically is the thinking behind Rep. Charles Rangel’s proposal to revive the draft.  Imagine Dick Cheney speaking at one of those mega-buck Republican fundraisers, to an audience worried that their own offspring might be drafted. The bellicosity and swagger over an Iraq would be quite a bit less.

Estate taxes serve this function only to a small degree.  They really don’t do much leveling, despite the whining and complaining on the Right.  No one ever has missed a meal or a medical insurance premium to my knowledge  because the estate tax brought them so low.  But at least it’s a reminder that we all are in this together – that we all reap gains from our society and so all have an obligation to give something back.

This probably is most true for those who think they owe society the least – ie the people who are “self-made” in their own estimations. Two days after the recent election, the San Francisco Chronicle ran a banner headline on its business page, “Welcome results for business: Passage of bonds should make it easier for firms to thrive in California.”  The story detailed how the passage of $40.1 billion worth of state bonds “was like Christmas” for California businesses, in the words of one Silicon Valley executive. “Almost every package we hoped for was under the tree.”

There was billions for roads, mass transit, schools, flood-control, and affordable housing, all of which will be of direct benefit to corporations and their employees.. In Washington, meanwhile, high tech executives were cheering the Democratic takeover of Congress, even if those in other industries were not.  “We are optimistic when it comes to Democrats and high tech because, to use a Silicon Valley term, they tend to get it,” said Bill Archey, the head of the American Electronics Association.

(“Getting it” is techspeak for “giving us what we want;” Silicon Valley people like to think that a failure to support them must be a sign of mental deficiency.)

There were implications for the real estate market too, and this made the point in another way.  Republicans cast themselves as “anti-government”, but the Bush years have been boom times for the D.C.-area real estate market.  This was due largely to the copious new business for defense contractors – the so-called “Beltway bandits” – for which the “war on terror” has been a long chow line.  The Wall Street Journal reports that D.C. today has the lowest office vacancy rate in the nation.

Since the election, however, funding uncertainties are causing that market to cool.  It is a neat twist that the election of Democrats – supposedly the friends of Big Government – should bring this particular downturn about.  But look at it the other way.  It was Republicans who fueled the boom with our tax dollars, and thereby helped create the private wealth that resulted.

Do not the rest of us – ie the society as a whole — have some claim on that wealth when it gets passed down to heirs who probably didn’t work for it at all? Ditto the wealth of Silicon Valley and California generally that was so enhanced by the Christmas presents of the last election.  It’s not asking for a whole lot.