A Cure for "Affluenza": 100% Marginal Tax Rate

Earlier this week, Judge Jean Boyd of Forth Worth, Texas, decided that 16-year-old Ethan Crouch, who had killed four people during a drunk driving incident, should not go to jail because he suffers from "affluenza."  He will get 10 years probation instead, possibly in a small private home in California that offers extensive one-on-one therapy (his parents' preference). I doubt the judge would have been so kind if the disease was poverty, not wealth.

Crouch was driving a pickup truck 70 miles-per-hour in a 40 mph zone. He killed four people who were standing on the side of the road outside their car and injured nine others.

The psychologist hired by Crouch's parents argued that he suffered from "affluenza," and the judge was apparently receptive:

Miller said Couch's parents gave him "freedoms no young person should have." He called Couch a product of "affluenza," where his family felt that wealth bought privilege and there was no rational link between behavior and consequences.

He said Couch got whatever he wanted. As an example,  Miller said Couch's parents gave no punishment after police ticketed the then-15-year-old when he was found in a parked pickup with a passed out, undressed 14-year-old girl.

Miller also pointed out that Couch was allowed to drive at 13. He said the teen was emotionally flat and needed years of therapy. At the time of the fatal wreck, Couch had a blood alcohol content of .24, said Tarrant County Sheriff Dee Anderson. It is illegal for a minor to drive with any amount of alcohol in his or her system.

In this particular incident of "affluenza," at least part of the cure is self-evident: taxing away (or fining away) most of his parents' wealth. They themselves admit that their exorbitant wealth has made them fundamentally incapable of raising a child who can understand such basic moral precepts as "don't kill people." 

However, this is just one incident of the wider epidemic of "affluenza" in this country. Because of "affluenza," many of our rich (and that includes our politicians) have the moral character of sociopaths. We see all of the time how extreme wealth corrupts individuals and corrupts democracy and the justice system. Extreme inequality is a disease in the body politic.

So how can we cure this epidemic? I'd like to offer a proposal: a 100% marginal tax rate.

One of the earliest (if not the earliest) modern proponents of a maximum income (a 100% marginal tax rate) was Felix Adler, social reformer and founder of the Ethical Culture movement. He laid out the case for such a tax system in a packed 1880 lecture at Manhattan's Chickering Hall as part of a series called "Just Measures of Social Reform." In prior lectures in the series, he had advocated reorganizing the economy on a cooperative basis and stressed the need for social experimentation and education to achieve that end. The question, of course, then became how to fund such experimentation. For that, he outlined principles for just taxation.

First, he highlighted which parts of a person's income should be exempt from taxation: (1) a fund for the necessaries of life and health and (2) a fund for savings for sickness and old age. On these points, he agreed with John Stuart Mill. Adler added another category for exemption: a fund for "legitimate luxuries," those supporting knowledge and self-culture.

He sharply diverged from Mill, however, on the nature of the tax. Mill supported a flat tax, which Adler found to be morally and logically unsound:

Taking the rate of tax at 3 per cent, the man with an income of $500 would pay a tax of $15; $1,000 would be taxed $30; an income of $50,000 would pay $1,500, and one of $500,000 would be taxed $15,000. “There is evidently,” said Prof. Adler, “a most glaring inequality implied in this seeming equality. The person with an income of $500 must deny himself many satisfactions, and the $15 which he pays to the State creates a void. The man with an income of $1,000 must also live very narrowly, and the $30 which he pays for taxes might have been expended in books for which he is perhaps longing, for clothes for his children, or for making things easier to the hard-worked wife, who is toiling to make both ends meet. But who will tell me that the man with a half million will feel the want of the $15,000 which he pays to the State? Will he need to limit himself in the gratification of his wants, his business, or his caprices? Will not the $485,000 remaining to him annually suffice to satisfy all his desires? And does not, then, equality of percentage conflict with that excellent rule which Mill himself lays down at the beginning of his argument, that equality of taxation must mean equality of sacrifice? that each man shall be neither more nor less inconvenienced than his neighbor in discharging his obligations to the community?

He then proposed a graduated income tax, which would rise all the way up to 100%:

We demand a graduated tax, so imposed that if on a small income it be 3 percent, it shall increase in proportion to the means of the person taxed, to 10 and 15 and 30 and 50 percent, and that at last, when a certain high and abundant sum has been reached, amply sufficient for all the comforts and true refinements of life, the tax shall rise to 100 percent of all that is beyond—that is to say, that all beyond shall be taxed out of existence, so far as the individual is concerned.

I would protect the individual in his right to the private enjoyment of all that honestly belongs to him, of all that he can truly use for the human purposes of life; and only that which does not rightfully belong to him, only that which is to him merely a means of pomp and pride and power—such power as no individual ought to possess—would I have remanded into the general fund of society, where, in the name of justice, it belongs.

(emphasis added) 

He did not believe such a system were immediately feasible given that the rich were so often not even willing to pay the small amount of taxes they owed, feeling no shame in passing the burden onto the poor. He did, however, believe that such reform was possible in the long-term:

These things will not be changed until the common people take the matter in hand; until they are better instructed in regard to their rights and opportunities; until they find legislators who truly represent their needs, and until, in all calmness and all seriousness, but with all firmness, they declare their will in words that cannot be mistaken, and enact the only possible measures of relief.

The U.S. did not get a progressive income tax until 1913 after the ratification of the Sixteenth Amendment and the passage of the Revenue Act of 1913.  The marginal rate was only 7% (for income above $500,00---$11.8 million in 2013 dollars.)  The marginal rate rose sharply with the US entry into World War I, to 67% (on income above $2 million, or $36.5 million today). Coolidge brought the rate sharply down. Hoover and Roosevelt both raised marginal rates to provide for spending to combat the Great Depression. However, only Roosevelt ever expressed interest in a maximum income. 

In a speech in April 1942, Roosevelt called upon Congress to establish a 100% tax rate:

Profits must be taxed to the utmost limit consistent with continued production. This means all business profits- not only in making munitions, but in making or selling anything else. Under the proposed new tax law we seek to take by taxation all undue or excess profits. It is incumbent upon the Congress to define undue or excess profits; and anything in excess of that specific figure should go to the Government.

One of our difficulties is to write a law in which some clever people will not find loopholes, or in which some businesses will not be equitably included. I have suggested to the Chairman of the Committee on Ways and Means in the House of Representatives that some blanket clause could well cover, by a special tax, all profits of any kind of business which exceed the expressed definition of the legal profit figure.

At the same time, while the number of individual Americans affected is small, discrepancies between low personal incomes and very high personal incomes should be lessened; and I therefore believe that in time of this grave national danger, when all excess income should go to win the war, no American citizen ought to have a net income, after he has paid his taxes, of more than $25,000 a year. It is indefensible that those who enjoy large incomes from State and local securities should be immune from taxation while we are at war. Interest on such securities should be subject at least to surtaxes.

(emphasis added) 

FDR's recommended maximum income is equivalent to $358,000 in 2013 dollars. Congress did not oblige, but they did raise marginal rates and did so again in 1944, bringing the marginal rate to its all-time high of 94%.

FDR advocated a 100% marginal income tax for the sake of funding a war. If only our political leaders were interested in such measures during times of peace to fund the humane ends of society. Until they do, the epidemic of "affluenza" will rage on.