Monthly Archives: November 2012

Rise of the Taxman

[Note: I wrote this a few months ago…and for one reason or another, didn’t publish. Here it is, because I’d rather get feedback than keep a draft in a drawer.]


Bruce Wayne enters the room at the turning point of the summer’s box office hit, the Rise of the Dark Knight, and breaks up the dancing couple that is Selina Kyle, also known as the Catwoman, and her latest, wealthy, elderly, mark. It is Bruce’s first appearance in public in years, and as he leads Selina dancing through the crowd she introduces him, and the movie viewer, to the plot that is to come: “A storm is coming,” she whispers in her ear. The world order will be upended, she implies, as the 99% will rise up against their 1% overlords.

Much has already been written analyzing whether the Rise of the Dark Knight, and its political philosophy is at its core a critique of the Occupy Movement and a defense of the current financial system. Others have written that the film’s central treatise is defense of Liberal Democracy. But articles that delve into the film’s philosophy miss the point. Whether this film is art imitating reality, or whether reality imitated the art in the Batman comic books is a nice but ultimately useless discussion. The film is much more valuable not as a critique of the current, but rather as what is known as a gedankenexperiment (an experiment conducted in one’s brain, which, for the analytical minds among us, happened to be Albert Einstein’s favorite approach) focused on what would happen if our reigning financial system would disintegrate. From it we may be able to pull insights about how we think about the rich, their role in society, and their relationship with the mechanisms of State.

Understanding the wealthy and their responsibility to the State is ever more pressing at this very moment, as publics around the world, and particularly in America, contend with the question of whether an individual’s private financial dealings should affect how they feel about that individual as he (it is mostly he’s) runs for office. The most prominent of these, of course, is Mitt Romney, the Republican Party’s candidate for the President of the United States, who has used tax shelters in the past to avoid paying taxes to the US Government. This action has been lauded by the Tea Party as his right as a capitalist individual who naturally should optimize his profits, and decried by the Occupy movement (and others) for showing his lack of solidarity with the majority of the American people who cannot afford the luxury of loopholes. This argument carries over to other democracies, such as Israel, where protesters exclaim that the prime minister, Benjamin Netanyahu, and his sidekick Defense Minister, Ehud Barak, cannot understand the plight of the middle class due to their upper-class lifestyle and high-rise apartment flats.

But rather than polarize the argument with politics, let’s focus on the movie as a test case for thinking about taxation and its requirements. The scene set by this Batman movie (an apologies, spoilers will follow) is one in which Gotham, the prototypical metropolis, is teeming with financial intrigue and competition. While nothing is said in the film about the larger market and its discontents, the story implies that the rich are doing fine, fighting for a larger piece of the pie, and the rest are living their lives with no more than the usual daily struggles. Enter Bruce Wayne, who in his spare time is the Batman, a billionaire with the heart of the 99%, who critiques lavish fundraisers and invests his profits in bettering the lives of orphans like him.

Bruce returns to run his major corporation when he learns that the directors serving in his place have allowed profits to fall, thereby hurting the charitable contributions Wayne Enterprises has been giving to a local orphanage. A set of plot points later, Bruce has been removed from the board, Batman has been exiled, and Gotham has been overrun by an anarchist gang speaking in the language of the Occupy Movement, seeking to return the streets to the “People of Gotham.” To do so, they kill the mayor and neutralize Gotham’s Finest (the police department) by trapping them underground, setting up an alternative government of the people, represented by People’s Courts. Mayhem ensues, as the People of Gotham attack the rich with animal ferocity, take over their homes, strip them of their property, and send elderly, fur-wearing women before a court that sentences them to death for the crime of hoarding their resources and lording them over the People.

Unpacking this, a theory of the economy and society emerges that most of us will clearly recognize: Life without the rule of law is, in the words of Thomas Hobbes, “solitary, poor, nasty, brutish, and short,” and the State’s control is a necessary evil, enabling people to live proper lives without fear of senseless violence. Kyle recognizes the truth of this Hobbesian politics when, in the midst of this chaos, she turns away from her girlfriend and forsakes her previously revolutionary convictions, and ends up helping the billionaire Batman put the world back together where the State protects private property and order reigns supreme.

On the surface level, one could claim this is the underlying thesis of the movie, and of Western Capitalism in general: that charity should be contributed from the profits of free enterprise, that billionaires generally have good intentions, that taxes are a burden, and that the State is a necessary evil that even cat-burglars will recognize and fight for when they realize the alternative is far worse. But if we dig a bit deeper, the thought experiment concerning what happens when the State is weak and order breaks down reveals a much more fascinating insight about who benefits most from the State.

If one is to assume that Hobbes is right, and that the State is a necessary evil protecting order and allowing individuals to live productive lives generally fear-free, then what we learn from Batman’s gedankenexperiment is that no one needs the State more than the wealthy. What the film does wonderfully is help us explore how order would break down. First, there would be confusion, as individuals would drift towards their own property. Then, as some test the limits of the new order, a few petty crimes would happen. Once a few individuals find that the response of the new order to break ins or trespassing is slow or weak, looting would grow – until the point that it was no longer looting, but rather a full-scale bout of property redistribution. The Rise of the Dark Knight shows this to us most clearly in a scene where the doormen and porters in a building of wealthy, elderly individuals, escort the wealthy out, take away their possessions, and proceed to throw roaring parties in the newly ‘liberated’ venues.

What we can viscerally understand from this is that the highest opportunity cost loss associated with the breakdown of the State is born by those who have property that is not easily defended. We know this intuitively – that police show up at richer neighborhoods more readily than poor ones, that governments tend to bail out large debt holders quicker than they do little ones – but for one reason or another we haven’t yet integrated that insight into our cultural conversation about taxes. We speak about taxes as a ‘burden,’ as a challenge to overcome, as a ‘game to beat’ through deductions and loopholes, out of the notion that they are a necessary evil, without asking who values stability most. We speak about ‘progressive taxation’ as a way to ease the burden on the ‘have nots,’ instead of a way to recognize that it is the ‘haves’ that have the most to lose if the system breaks down: if the police person does not deter the doorman from looting the elderly wealthy person’s home, if the estate lawyer doesn’t pillage the estate that the deceased can no longer defend.

To use a personal example, my family, which works in the civil sector, has much less to lose than a wealthier family when Lehman Brothers falls due to lack of effective regulation, when NASDAQ failures plummet a newly minted stock, and much less at stake if commodity markets skyrocket due to a failure of foreign policy. We have less to lose because we do not have our money in the markets, because while we save we generally live according to our paycheck, and therefore we are much less exposed to the pressures that affect the wealth of those whose assets are distributed and managed. If a Dark Knight-like revolution were to break out, my family would not be targeted, whereas a richer family would have more to lose. In that context, the fact that the family with more is asked to pay a greater percentage of their net worth to maintain stability is not ‘progressive,’ it is practical and even a conservative way to hedge one’s bets and protect one’s assets. Conversely, when an individual seeks to reduce her exposure to taxation, through loopholes or tax-havens, that individual is working against her long-term self-interest by weakening the social fabric and increasing the probability that chaos will wipe out their assets in the future.

If we are to accept this new frame of thinking about taxation as insurance, as opposed to taxation as a burden, we are required to change our policies in accordance. For example, the individual who aspires to leave assets to her heirs is banking on the system remaining stable across centuries: a country whose education system (for example) does not produce skilled laborers falls in productivity, thereby falling in GDP, thereby losing its advantages in trade, thereby depreciating the assets of the individual who wanted to pass on her property to the next generation.  If she would like her progeny to benefit as much, if not more, than the current value of the assets, the least she can do is pay insurance to the state so that its mechanisms can remain strong, and those assets actually remain worthwhile in value. In this case, this means that instead of thinking of estate tax as a ‘Death Tax,’ one should think of it as ‘Long Term Property Value Insurance.’ And so on.

The share of one’s income that one pays to strengthen the mechanisms of the State should thereby be tied to the relative amount of assets one would like to safeguard. “Progressive” taxation becomes “Value-based” taxation. One might try to make the argument that individuals who benefit directly from the system through what have been called ‘entitlements’ would thereby be getting more value out of the system, but to do so would be inaccurate in pure fiscal terms: education is instrumental to ensure a skilled working class and protect productivity levels, defense acts to protect a country’s relative position so that it can trade openly and fairly, and a good welfare system keeps people off the streets so that they do not resort to crime in order to feed their families. Crimes that, if not defended against, will reduce property values, hurt the markets, and hurt the wealthy physically and directly. The wealthy extract far more value from a stable system than the working class which may or may not receive ‘entitlements.’ And when those entitlement programs do not function, the wealthy have every right to participate in the democratic process to try and amend them, but there is no justice in extracting value from a system while personally withdrawing one’s support and placing it in far-off islands.

The Rise of the Dark Knight summarizes this scenario in the best possible way: once the Police, employees of the State, are freed, they go head to head with the armies of the 99%. They, and not the populace, because our State is built on the assumption that it and it alone appoints its defenders. The tragedy of the Dark Knight is that Batman himself is never accepted by the official mechanisms of State – and in the same, way, a State can never accept an armed group that protects a minority’s interests alone. No, that’s what taxes are for: to enable the State to create one law, one order, one justice, so that individuals can focus on being productive and living good lives. In a world in which more and more of our economies are built upon computer-based trading and estimations of the value of digital assets, we will require ever more stability, and those who are benefiting disproportionately from this new economy would be wise to invest heavily in insuring their wealth into the times to come.

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