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Taxing the Rich

During the last couple of months, as we headed into what most folks – excluding transactional attorneys – call the “Holiday Season,”[i] tax authorities from around the globe have been calling for increased taxes on the rich, however one chooses to define this class of individuals.

The chief economist for the European Central Bank, relying on macroeconomic policy and concepts of “fairness,” advised governments to tax the rich to support society’s vulnerable groups.[ii]

In the U.K., His Majesty’s Revenue & Customs announced an initiative to pursue tax fraud by the wealthy and mid-size businesses. In fact, it has been reported that HMRC plans to go so far as to assign agents to personally monitor the tax affairs of certain individuals – an odd variation on the “buddy system.”

Italy has authorized the launch of a new algorithm that cross references and compares individuals’ financial data – tax filings, earnings, property records, bank accounts and electronic payments – looking for discrepancies that would help identify taxpayers who may be at risk of not paying their taxes.[iii]

Norway is set to increase the tax on dividends and capital gains to almost 38 percent. The Scandinavian country is also planning to extend and expand its exit tax on wealthy expatriates.

Japan announced that it is about to raise taxes on ultra-wealthy individuals, and Argentina’s government announced it will promote new legislation that would require citizens to declare assets held abroad.[iv]

In Africa, following the release of the “2022 Africa Wealth Report,”[v] several commentators and policymakers have called for the imposition of new wealth taxes on certain individuals and corporations residing in African countries to generate revenues and reduce income inequality in Africa.[vi]

Then, out of “left” field, Chinese President Xi Jinping recently pledged to regulate his country’s wealth by improving “the personal income tax system” and calling for a “well regulated” system of wealth accumulation, which many interpreted as plans for the imposition of property and inheritance taxes on the wealthy.[vii]

At this rate, I thought to myself half facetiously, will the very wealthy eventually run out of places to which they may escape from these higher-tax jurisdictions?[viii]

Meanwhile, many in our own Congress are hoping that the $80 billion earmarked to the IRS over the next decade, pursuant to the Inflation Reduction Act, will raise as much as $1 trillion from tax evaders.[ix]

What’s more, the new funding may enable the Service to issue some of the regulations identified in the 2022-2023 Priority Guidance Plan, which are aimed at shutting down various planning strategies often utilized by wealthy Americans.[x] As the old maxim goes, “if you can’t legislate, regulate.”

Has Washington decided that enforcement of the law to generate tax revenues from bad actors – i.e., from those who have breached their obligation to society – is more equitable and effective than merely raising tax rates for everyone? According to historical experience, probably not.

Feeling Charitable[xi]

That’s quite a lead-up to the Holiday Season, also known as the “Season of Giving” because so many spend so much on gifts for family and friends during this time.  In addition to such “private transactions,” however, the last few weeks of the year are also when a lot of charitable giving occurs.

Indeed, December accounts for approximately 30 percent of Americans’ annual giving to charities.[xii] In the case of most folks, such giving takes the form of a check made out to a children’s hospital, a soup kitchen, a scholarship fund, a religious organization, a shelter for the homeless, a community theater, etc. – in brief, to working organizations that are actively and directly engaged in furthering the purposes for which they were founded and on which their quasi-public and tax-favored status are based.

In contrast, someone of substantial means may decide to fund their private foundation. The contributor to such an entity realizes an immediate tax benefit for their gift, while the foundation’s grants to active or working charities will often merely satisfy the Code’s annual 5 percent minimum distribution requirement.[xiii] In some cases, these minimum distributions have taken the form of transfers from the foundation to a foundation-sponsored account at a donor-advised fund,[xiv] distributions from which, for all intents and purposes, remain subject to the direction of the contributor.[xv] More recently, there have been reports of commercially sponsored donor-advised funds shuttling their wealth among their fellow funds.[xvi]

Which brings us back to taxes (of course) and the spirit[xvii] of the Season.

“The Reason for the Season”

“And it came to pass in those days, that there went out a decree from Caesar Augustus, that all the world should be taxed. . .  And all went to be taxed, every one into his own city. And Joseph also went up from Galilee, out of the city of Nazareth, into Judea, unto the city of David, which is called Bethlehem, . . . to be taxed with Mary his espoused wife, being great with child.”[xviii]

So begins the New Testament, with folks being ordered by a foreign power to participate in a census that would be used to determine how much tax they owed to those who ruled over them. It’s easy to understand why locals who assisted in the collection of such taxes were often despised by their own people.

Yet the Book clearly states: “Render to Caesar the things that are Caesar’s.”[xix] Pay the taxes you owe. After all, how else was Rome to fund so many of the elements on which the well-being of organized society depended, including the construction of roads and cities that facilitated the flow of commerce and the spreading of ideas, the building of aqueducts that brought water and introduced sanitation to so many places, and the maintenance of legions that guarded the empire’s borders and waterways?[xx]

But wait, there’s much more. Although acknowledging the authority, and perhaps even recognizing the utility, of Roman taxes – though probably not their legitimacy – the Book delivers a more “practical” message, one that pervades both the Old and the New Testaments: do not forget your responsibility for, and your duty to, your community. For example:

“And when ye reap the harvest of your land, thou shalt not make clean riddance of the corners of thy field when thou reapest, neither shalt thou gather any gleaning of thy harvest: thou shalt leave them unto the poor, and to the stranger.”[xxi]

“Whoever has a bountiful eye will be blessed, for he shares his bread with the poor.”[xxii]

Apparently, by the time of the events described in the New Testament, too many well-to-do folks must have forgotten the above strictures. Thus, we encounter the following:

“It is easier for a camel to go through the eye of a needle than for a rich person to enter the kingdom of God.”[xxiii]

“‘If you would be perfect, go, sell what you possess and give to the poor, and you will have treasure in heaven; and come, follow me.’ When the young man heard this, he went away sorrowful, for he had great possessions.”[xxiv]

Thus, the scriptures do not take issue with wealth in and of itself – hardly.[xxv] Rather, they take issue with how the individual who possesses such wealth makes use of it. In doing so, they strongly imply an obligation – whether moral or social, does it matter? – to care for others less fortunate.[xxvi]

Social Contract

To borrow a phrase from Mickey Goldmill – Rocky Balboa’s manager – I do not intend to take this post to a “Biblical place,”[xxvii] though I’ve certainly started down that path; I suppose it’s the season.

That said, it is my intention to turn this post into a brief commentary on the state of the social contract.

At its most basic level, social contract theory is premised, as most of you know, on the notion that individuals came together to form a community with the understanding that they that they would appoint from among them certain members who would be  charged with the responsibility for protecting them from outside threats (as well as from each other), providing them with various civil services to maintain and improve their community, and ensuring them certain “civil rights,” thereby enabling them to sustain a livelihood and pursue economic opportunities.

In exchange for these benefits, the theory continues, individuals gave up certain “freedoms” – for example, the “natural” freedom to do as one wishes in the manner and at the time that one wishes – and otherwise agreed to conduct themselves in accordance with the community’s rules.

Among the most fundamental of these rules is the obligation of every member to contribute toward the cost of providing the above-referenced services and protection – i.e., the obligation to pay taxes.

Unfortunately, there are always some individuals – thankfully, relatively few – who are willing to accept the benefits afforded by a community but who nevertheless choose to exercise their “natural” rights by denying their obligation to contribute toward the maintenance of the community.

In today’s society, these folks choose to hide their wealth.[xxviii] They feel “put upon” by the system of taxation and consequently decide unilaterally how much tax they will pay.[xxix] In doing so, they breach the social contract – too often without any meaningful repercussions for themselves. There are consequences for others, however, as government responds to “tax gaps” by increasing rates and limiting incentives for all taxpayers rather than taking action against the bad actors – the former is easier to do and perhaps more palatable than the latter.

Significantly, these same folks – including those who abide by the letter of the law – also tend to neglect their moral duty to society by refusing to share their wealth beyond what their tax dollars will provide. Once again, we turn to Dickens:

“At this festive season of the year, Mr. Scrooge,” said the gentleman, taking up a pen, “it is more than usually desirable that we should make some slight provision for the Poor and Destitute, who suffer greatly at the present time. Many thousands are in want of common necessaries; hundreds of thousands are in want of common comforts, sir.”
“Are there no prisons?” asked Scrooge.
“Plenty of prisons,” said the gentleman, laying down the pen again.
“And the Union workhouses?” demanded Scrooge. “Are they still in operation?”
“They are. Still,” returned the gentleman, “I wish I could say they were not.”
“The Treadmill and the Poor Law are in full vigour, then?” said Scrooge.

Based on the foregoing, is there a reasonable argument that it’s time for society to “amend and restate” its contract with these folks, or to at least clarify what is expected of them?

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The opinions expressed herein are solely those of the author(s) and do not necessarily represent the views of the Firm.

[i] Yours truly is a transactional type, and during most year ends I find myself channeling Scrooge, when he says, “I wish to be left alone,” and “I don’t make merry myself at Christmas.” Indeed, some folks refer to my office as a “meat locker,” which again elicits Scrooge, of whom Dickens writes, “He iced his office in the dog-days, and didn’t thaw it one degree at Christmas.”

Then again, my mood may be attributable to the fact that the local McDonald’s is closed for renovations. Their timing couldn’t be worse.



[iv] Yes, Argentina won the World Cup and Messi finally has the trophy that eluded him so long. Somehow, I can’t forget that his name appeared in the Panama Papers and, separate from that, he was convicted of tax fraud in Spain a few years back, for which he was given a 21-month suspended sentence and fined about € 2 million. A pittance for the then star of Spain’s Barcelona football club.

Don’t even get me started on Shakira, who is facing six counts of tax fraud for failing to pay € 14.5 million in income taxes to Spain. Her hips don’t lie, she says, but look out for those tax returns.


[vi] According to the report, a small number of individuals living in South Africa, Egypt, Nigeria, Morocco, and Kenya account for over 50 percent of the continent’s total private wealth.


[viii] Might some of the uber wealthy already be planning for their next tax-free landing? For example, have Branson, Bezos, and Musk built their tickets “to boldly go where no [add whatever] has gone before”? Or, to quote Shrek, “Do you think maybe [they’re just] compensating for something?”

[ix] Closer to home, Comptroller Thomas DiNapoli last week warned that New York’s high taxes may already be pushing wealthy residents out of the city. “There’s no doubt,” he stated, “there’s been a net migration of taxpayers at the upper end. It should be a concern for everybody.” DiNapoli stated that the top 1 percent of taxpayers are responsible for 40 percent of the state’s personal income tax revenue. Moreover, the rate increases enacted during the pandemic are unlikely to expire in 2027, as scheduled, he said, adding that he doubts they would ever be phased out. Sounds familiar? It wouldn’t be the first time a “temporary” surtax imposed by Albany becomes permanent.

That said, it was recently confirmed that Democrats will have a super majority in Albany, which they very well may use to push through additional tax increases – how else is the state going to care for the thousands of illegal immigrants seeking “sanctuary” here? Mr. DiNapoli has stated it would cost the City $1 billion annually to house and service these folks.


[xi] Back to Dickens.

“At this festive season of the year, Mr. Scrooge,” said the gentleman, taking up a pen, “it is more than usually desirable that we should make some slight provision for the Poor and Destitute, who suffer greatly at the present time. Many thousands are in want of common necessaries; hundreds of thousands are in want of common comforts, sir.”


[xiii] IRC Sec. 4942.

[xiv] Technically, a public charity within the meaning of IRC Sec. 170 and Sec. 509.

[xv] Query why. The tax deduction has already been realized.

[xvi] (“Say it ain’t so,” as some young boy is reputed to have said to Shoeless Joe Jackson following the 1919 World Series scandal.)

[xvii] Keep thinking about Dickens.

[xviii] Luke 2:1-14 KJV.

Don’t you picture Linus (of Charlie Brown fame) on stage reciting these lines to a rapt audience of Peanuts characters? I will never tire of “A Charlie Brown Christmas.”

Speaking of which, I’ve concluded that CB must have become a tax attorney:

“I think there must be something wrong with me, Linus,” Charlie Brown says. “Christmas is coming but I’m not happy. I don’t feel the way I’m supposed to feel . . . I always end up feeling depressed.”

[xix] Mark 12:17. KJV.

[xx] For an illuminating discussion of the Roman system of taxation, and the role it played in the ultimate demise of the empire, please see the following paper by Bruce Bartlett:

[xxi] Leviticus 23:22.

[xxii] Deuteronomy 15: 7-8.

[xxiii] Mark 10:25.

[xxiv] Matthew 19: 21-22.

[xxv] You’ll note that “equality” in the economic sense is not a message delivered by the Book – to do so would be to deny a basic understanding of the human character and biology.

Solzhenitsyn said it best: “Human beings are born with different capacities. If they are free, they are not equal. And if they are equal, they are not free.”

[xxvi] So much for “And the LORD said unto Cain, Where is Abel thy brother? And he said, I know not: Am I my brother’s keeper?” Genesis 4:9. KJV

[xxvii] Rocky II, the scene in the chapel at the hospital where Adrian is in a coma.

[xxviii] In some cases illegally, though governments the world over are finally coordinating their efforts to stamp out this common plague; in other cases, legally and in plain sight – in that case, the blame lies with the lawgivers.

[xxix] I sometimes think they fancy themselves mini-Jeffersons:

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.–That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, –That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.”