Higher Taxes Help the Richest, Too

Taxes and regulation will occupy center stage in the presidential contest.

 

One debate, for example, will focus on whether tax cuts for the wealthiest families should expire as scheduled at year-end — an issue that could gain traction now that Mitt Romney, the possible Republican nominee, has disclosed that he and his wife paid an effective federal rate of just 13.9 percent on their huge 2010 income. And on the regulation side, there will be attempts to repeal rules like the recently adopted Environmental Protection Agency standards that limit highly toxic mercury emissions.

 

Surveys indicate that most voters now favor higher taxes on the rich. But many wealthy people are determined to hang on to their tax cuts, and because recent changes in campaign finance law have greatly increased their political leverage, they may prevail. If so, however, it could prove a hollow victory.

 

Beyond some point, there seems to be little gain in satisfaction from bolstering your private spending. When mansions grow to 15,000 square feet from 10,000, for instance, the primary effect is merely to raise the bar that defines an adequate home among the superwealthy.

 

By contrast, higher spending on many forms of public consumption would produce clear gains in satisfaction for the wealthy. It’s reasonable to assume, for example, that driving on well-maintained roads is safer and less stressful than driving on pothole-ridden ones.

 

But that raises an obvious question: If wealthy taxpayers would be happier to drive slightly less expensive vehicles on better roads, why are so many of them vehemently opposed to the higher taxes needed for improved infrastructure?

 

One possible explanation is that they suffer from a simple cognitive illusion when they think about how higher taxes would affect them.