Opinion

Chrystia Freeland

‘Kumbaya’ capitalism collides with self-interest

By Chrystia Freeland
January 26, 2012

DAVOS, Switzerland–George Soros is a traitor to his class. That’s not an insult or a tabloid exaggeration. It is, instead, a direct quote from my conversation with the billionaire investor and philanthropist at the World Economic Forum here.

‘‘I am a traitor to my class,’’ Soros said. ‘‘I think that the income differentials are too wide and ought to be narrowed,’’ he added, which is why he favors a bigger hit on those, like himself, at the very top.

But among his plutocratic peers, he said, that is very much a minority opinion. In fact, Soros, who helped spearhead the muscular Wall Street support for Barack Obama in the 2008 presidential election, particularly among hedge fund and private equity investors, believes the president’s call for higher taxes is the reason he has been ditched by the financiers: ‘‘That has led my hedge fund community to abandon Obama in favor of any Republican, because they don’t like to be taxed.’’

Henry Blodget, a former (and formerly disgraced) Wall Street analyst who has been resurrected as one of the smartest writers on business and politics, agrees that the financial class is strongly attached to its tax breaks. After his Wall Street friends have had a few drinks, he said, ‘‘they are cackling that they have fooled everybody into thinking that there’s some justification for this.’’ ‘‘This’’ is the carried interest tax provision, which allows some private equity and hedge fund managers to pay tax at 15 percent.

But the cackling may be coming to an end — and the hostility toward the president mounting — following his State of the Union speech on Tuesday. A centerpiece of that address, and most likely a central theme on the campaign trail over the next nine months, was Obama’s insistence that the 1 percent must pay up.

‘‘Right now, because of loopholes and shelters in the tax code, a quarter of all millionaires pay lower tax rates than millions of middle-class households,’’ Obama said, in an oblique attack on the carried interest tax break and on Republican candidate Mitt Romney, who paid an effective tax rate of 13.9 percent on income of $21.6 million in 2010.

‘‘Tax reform should follow the Buffett Rule,’’ the president said. ‘‘If you make more than a million a year, you should not pay less than 30 percent in taxes.’’ And, like Soros, the president has decided not to duck charges of class war: ‘‘Now you can call this class warfare all you want. But asking a billionaire to pay at least as much as his secretary in taxes? Most Americans would call that common sense.’’

And not just Americans. Davos is all about identifying the common challenges the global business community faces. One of the big ones this year is governments reining in their plutocrats in the most painful possible place — their bank accounts. In Britain, for example, the week began with proposals from Vince Cable, the business secretary, on how to bring down salaries for top executives.

‘‘We cannot continue to see chief executives’ pay rising at 13 percent a year while the performance of companies on the stock exchange languishes well behind,’’ Cable told Parliament on Monday. ‘‘And we can’t accept top pay rising at five times the rate of average workers’ pay as it did last year.’’ Chilling words for the City, especially since Cable serves in the cabinet of a Conservative prime minister.

Another one of the annual tropes at Davos is an emphasis on the softer side of business. This is a time of year for chief executives to wax poetic about their companies’ initiatives to educate the rural poor in India or provide clean water in Africa. But alongside these carefully crafted tales of corporate social responsibility, there is plenty of grumbling about government overreach. Three and a half years after the 2008 financial crisis, a particularly popular notion is the idea that the pendulum of financial regulation has swung too far, endangering not just the banking sector, but the sluggish economic recovery more generally.

There is also a powerful sense that businesspeople are being blamed for structural issues that aren’t their fault. One British executive told me it was wrong to criticize executives for their high salaries. Those were the fault of their boards and compensation committees: ‘‘The CEO,’’ the executive said, ‘‘really has no say.’’

In a similar vein, the private equity chief David M. Rubenstein, who served in the administration of President Jimmy Carter, said during a panel discussion that businesspeople like Mitt Romney shouldn’t be blamed for paying low taxes — that’s the government’s fault. ‘‘You change the law, and they’ll pay the taxes,’’ said Rubenstein, a co-founder and managing director of the Carlyle Group. ‘‘Romney said — and I’m not his defender — he’s paying whatever the law required. If you change the law, change the law. But don’t criticize him for paying the taxes that the law requires him to pay.’’

There’s some truth to that argument. After all, even Warren Buffett, the inspiration for Obama’s Buffett Rule, and the class traitor Soros today pay only those taxes required of them. Their point, as Soros told me, is that the tax rate should be higher. But of himself and Buffett, he added, ‘‘the Republicans are trying to save us from taxation — against our will.’’

Yet the Rubenstein defense goes only so far. The low tax rates for millionaires are neither a natural law nor an act of God. They are the result of a political process that, since the late 1970s, has pushed rates, particularly at the top, hugely downward. Business has been instrumental in that shift, both as a matter of general ideology and in fighting doggedly and skillfully for sector-specific tax breaks, like the carried interest provision.

It is pleasant to spend a few days in snowy Davos eating fondue, skiing and talking up creative examples of social entrepreneurship. It can even be fun to muse on one of the big questions the World Economic Forum has designated for collective cogitation: how to ‘‘redesign’’ capitalism.

But the hard part is embracing higher taxes or a lower salary. ‘‘I personally believe that when it comes to policy, you shouldn’t be pursuing self-interest but the public interest,’’ Soros said. But Davos Man prefers to believe in a world of ‘‘kumbaya’’ capitalism, where self-interest and the public interest would coincide. Openly insisting that this is not always the case is how Soros really has betrayed his class.

Comments
26 comments so far | RSS Comments RSS

Excellent op-ed, Chrystia. It’s really, really, really frustrating to hear over and over again from those on the right that raising taxes on the wealthy will hurt job creation. And, of course, the reverse–cutting taxes on the wealthy will create jobs–is equally absurd. And yet those of us who have the ability to do at least a little thinking for ourselves know it’s BS but it’s BS that is determining US tax policy. To have to sit there and listen to people like Eric Cantor or Newt Romney tell us this meme over and over again, and say it with a straight face, makes one lose hope in our country’s future. Because they’re getting away with it!

Closely related is the corruption in our government. The Republicans aren’t REALLY lowering taxes on the rich because they believe it will create jobs. They’re doing it to attract campaign donations. And, of course, because they’re afraid that Grover Norquist will disapprove and might retaliate, which is an even worse reason that attracting campaign contributions.

19 Republican debates and not once did I hear any of the debate “moderators” ask the candidates if they would acknowledge that our election system is corrupt. There are a lot of different ways that question could be asked. For example, do they think it’s in the best interests of the American people that our elected representatives spend at least a third of their time raising campaign cash. Or, do you think corporations and industries donate millions of dollars to a candidate simply because they like him or her? Do they really believe that there’s no quid pro quo going on? Government corruption is one of our nation’s biggest problems (I’d argue that it’s our #1 problem) and yet it’s never discussed. I suspect that’s because the moderators work for media corporations that rake in millions from our current system and they don’t want this topic discussed at all. I truly hope it comes up during the general election Presidential debates.

Here’s another one: Why do American pay higher prices for pharmaceutical drugs than any other country and what are they prepared to do about it?

Posted by doggydaddy | Report as abusive
 

I believe that the super rich should have a different set of rules that applies to them. They should be allowed to declare themselves ‘super rich’ which means that they pay no or limited income tax but on death their estate (less a couple million to pass to children) would go to the state or another purpose which serves society, of their choice. I have no doubt there would be major difficulties in regulating such a system, but I also be believe it could be made to work.

By declaring themselves ‘super rich’ they would not be allowed to spend more than a specific amount on selfish things – mansions, sports cars, yachts, jets etc, but would have unlimited discretion in spending money on business ventures, philanthropy etc.

The super rich who chose not to declare themselves should be taxed at a high rate and should also have to give their excess assets to the state on death.

I realise that this is at odds with many notions we accept for granted, such as that a man can give as much as he pleases to his heirs, but I think it will be better for everyone except the heirs, who will still be much richer than you or I will ever be.

Posted by BidnisMan | Report as abusive
 

One British executive told me it was wrong to criticize executives for their high salaries. Those were the fault of their boards and compensation committees: ‘‘The CEO,’’ the executive said, ‘‘really has no say.

you have to love this one – boards are made up of ceo’s of other companies, and the ceo who “really has no say” is on reciprocal boards – see any pattern here? apparently the source can’t figure it out. some source.

Posted by jcfl | Report as abusive
 

What a great article!

Posted by KyleDexter | Report as abusive
 

Great article, Chrystia. Unfortunately, 99% of the business people attending Davos will ignore the point that Soros is making.

Posted by DanToronto | Report as abusive
 

Oh, and let’s not forget that 1/3 of the world’s wealth is held off-shore, out of reach of any taxes. That’s 1/3!!!

If we really want tax reform and the end of the 1% favored status, the eliminate all numbered accounts, off-shore tax havens, and consider tax fraud a crime in all countries. Letting Switzerland and others hide this wealth is a threat to world peace.

If anything that is somewhat rewarding with the spectacle of the Davos and the US Republican Primary, is that finally the favored tax status of the super rich is under the microscope.

Posted by Acetracy | Report as abusive
 

This is the challenge to democracy in this century. Will we governed by capital or will citizens govern? 2012 will determine the fate of democracy. If the republicans capital will govern and citizens will loose the power to redress their government.

Posted by Ladyingreen | Report as abusive
 

The 1986 Tax Code, as amended, and amended,and amended,and amended,and amended, by the Congress grants enormous favors to the rich investors under the belief that if they make huge sums of money they will invest it in the economy. This is a bogus argument! Whatever the rich have made in the past 30 years hasn’t been invested, even mostly, in the American Economy. Their money has been invested in multinational companies that send their money overseas and send our jobs their as well. Their money has also gone into a stock market that has become a gambling casino which is of no benefit to the United States.

There must be a reorganization of the Tax Code so that everyone pays equal taxes on equal income. That would allow for progressive taxation but would eliminate the special treatment of capital gains, or would move it back to 20%, which is where it was during our most prosperous years. It would also return short term and long term capital gains rates. That might put a crimp in the gambling casino aspect of Wall Street. We also need to end any benefits that a company gets from the US Tax Code for sending jobs overseas. If they want to send them there they are harming us and when someone harms me I make them pay. Let the new Tax Code make such companies pay for destroying the country.

I’d like to see a country where everyone pays equal, albeit lower taxes. Let Mitt Romney and his ilk pay a flat 20% on what he makes, anyway he makes it. I would also get rid of tax benefits for home ownership and for married couples. Few and fewer people own homes in this country and less than half of our people are married. That means that over 50% are paying more taxes to subsidize the married people. End all these special benefits, end the social engineering of the code and just make a fair tax code.

Posted by JaketheLion | Report as abusive
 

It had to be said! Well done (written) Ms Freeland!
Interviewing Saros, the traitor must have been very intereting.

About time to claim back our car keys and turn off the TV start using our heads ourselves.

Posted by SmokingGun | Report as abusive
 

Excellent article, kudos to power elites like Buffet and Soros for having the courage to speak the truth on this important matter during these particularly tumultuous times. The analysis is spot-on, especially this:

“The low tax rates for millionaires are neither a natural law nor an act of God. They are the result of a political process that, since the late 1970s, has pushed rates, particularly at the top, hugely downward. Business has been instrumental in that shift, both as a matter of general ideology and in fighting doggedly and skillfully for sector-specific tax breaks, like the carried interest provision”.

For the past 30+ years, the pendulum has also shifted in in the favor of lower corporate tax rates, and even those are rarely the effective rate that is actually paid. We have huge MNCs like GE paying absurdly low rates, oftentimes closer to 5%. This is all deemed acceptable and entirely approriate if not necessary in the eyes of Conservatives who consistently recite the same old tired and ever-specious argument that excessive taxation and burdensome regulation is always the only problem, often referring to some overly-contrived public dependence on these purported “job creator” millionaires, meanwhile 70% of the jobs in this country are small businesses.

The largest 30 corporations collectively paid more in lobbying expenses than they did in taxes last year. What does that that tell you? That the current climate is all a result of a concerted effort on the part of special interest groups who lobby for corporate interests and fund the campaigns of the politicians who dictate policy, legislative and otherwise, in this country. These same politicians who are supposed to be elected representatives and disinterested public servants, serving the public interest, aren’t actually working for the interests of the general public.

Posted by YoungProf | Report as abusive
 

Oh my God! The statement “…that businesspeople like Mitt Romney shouldn’t be blamed for paying low taxes — that’s the government’s fault”. The hypocrisy can be cut with a knife. The corporations and ultra-wealthy go to far out extremes to infiltrate the government to bend the laws in their favor and then have the nerve to blame the bent laws on the government. The government is just a victim of a disease. Don’t kill the patient. Cure the disease.

Posted by possibilianP | Report as abusive
 

….I work in a large bank, and my job has me reviewing tax returns; I see a lot of tax returns.
Here’s an observation……it’s not just the super rich that side-step taxes.
Spend a few years looking at the nation’s Schedule C & Schedule E ……and you could reasonably conclude that our country may very well rank last when it comes to earning money by running one’s own business, or managing real estate investments.

Posted by srgntnewkirk | Report as abusive
 

“One British executive told me it was wrong to criticize executives for their high salaries. Those were the fault of their boards and compensation committees: ‘‘The CEO,’’ the executive said, ‘‘really has no say.’’

Oh really? they sit on each other’s boards and compensation committees, they got to the pub together on a Friday evening, talk about football, but nah… never about their salaries.

‘‘You change the law, and they’ll pay the taxes,’’ said Rubenstein, a co-founder and managing director of the Carlyle Group. ‘

But, the problem is they wouldnt allow you to change the law in the first place, because they ‘own’ the crooked polititians.

Posted by bargreen | Report as abusive
 

BidnisMan described the system of economic recycling that Tiberius started during the early years of the Roman Empire. All nobles with any significant wealth were obligated to will their property to him and he decided what to return to the heirs.

When he died, the state was loaded and than Caligula came in and blew it all in a fit of conspicuous self-inflation only to try to resurrect it with another murderous purge of class leveling.

They always knew the rich got richer and could never quite figure out a stable and sensible way to send it back down to the levels where it actually kept the rest of the population above the level of slavery.

Posted by paintcan | Report as abusive
 

Brave article! No “co-dependency issues” here…

Watch for “diversions”; a war breaking out, a terrorist act… Diversions are the clever weapon of the corporate elite. It is time for “Wall Streakers” to put their clothes back on a go to work!

The “mortgage boinkers” could use some “time off” without pay for duping 11 million American households on sales and interest rates. 11 million households in a state of high anxiety v. the ones who “boinkered” their mortgages. How about a 90 day moratorium on making mortgage payments – let Soros, Buffett and Gates make the payments!

That would be a true, earnest attempt by the corporate elite to make amends and stimulate the economy…

Posted by PanchoVanilla | Report as abusive
 

I can see how it is not the billionaires or the corporations fault for hiring lobbyists to lower their tax rates.

Posted by carnivore | Report as abusive
 

Capitalism does not collide with self-interest in the long run, it was never meant to be a get rich quick scheme. HOwever, if you have a great or some great ideas, yeah you should get paid for them. We have not had capitalism in this country for 40 years or so. If people make a liveable wage, they will spend more money, and therefore help the economy.

Posted by carnivore | Report as abusive
 

One of the issues for those of us in the middle income areas is paying for your everyday expenses. For example, increases in paying for gasoline, groceries, clothes, and other items cuts into discretionary income. I strongly believe one of the issues is the increase in living expenses has kept the recovery from taking hold. Inflation is a tax as much as increase in tax rates. Think about this for taxes: Are you more likely to spend money knowing the tax rate is 15% or when it’s over 20%? You might find ways to legally shelter it at over 20%. Thank you all.

Posted by Upwords | Report as abusive
 

Just an observation:
Hardcore capitalists say we should all act in our own best interest, and everything will balance out for the best of the economy. But I notice that these people are usually the very wealthiest. The fact is, if we all do what’s in our best interest, then the 99% of us ought to seize all the stuff from the 1% of you and divvy it up among ourselves.

Just sayin’….

Posted by TheDagger | Report as abusive
 

The simple facts…..Capitalism promulgated slavery before and after the revolution, Paired with Party Politics sparked the Civil War then put it down, Killed almost all the Buffalo then the Indians taking their land (most times twice), then built the country west adding states through promise and intimidation of territories then delivering multiple recessions/depressions through graft and corruption, introducing “fuzzy money” by cornering all the gold and silver and then empowering a centralized Washington DC when it busts then filling it with lawyers to work with accountants and the corporations to cheer-lead us all to out source to a “World Free Market” and then remind us all that Capitalism is a good thing.

Any body want to discuss that maybe… just maybe the track record of Capitalism combined with Politics LESS morality is a dangerous combination?

Posted by reuters55 | Report as abusive
 

News Flash:
Vested interest drags its feet as reform marches on. Rich individuals insist that they will be less rich if they pay more tax. Democrats wonder why they aren’t more popular at nice parties. Obama searches for sugar to accompany economic medicine. Can only find saccharin derived from drilling coal tar deposits.

Posted by basilbeshkov | Report as abusive
 

Never in my life have I read or heard so much socialist claptrap as the comments on this article. The article is fine but the comments are absurd.
References to hypocrisy are rife, but don’t target the real example. If Soros and Buffet really don’t think they pay enough taxes why don’t they just stoke a check. Talk is cheap, put your money where your mouth is.
As for the rest, how many times, in how many places do such Marxist ideas as proposed by BidnisMan have to be be tried? The pages of history and today’s newspapers are plastered with the abject failure of such policies. No matter how good such ideas may sound to some, they simply do not work in the real world. If you really want to influence corporate pay, lead a boycott, start a petition or do do something yourself. Too often the only solution anyone wants to see is an expansion of the State. Government never has been and never will be the answer. More often than not government is the problem.

Posted by RedIsForFools | Report as abusive
 

Excellent post, RedIsForFools. Instead of helping themselves by initiating social change and pushing it to conclusion, people want government to save them. Frankly, what we should be discussing is how to make government even smaller so that we can lower taxes for everyone — yes, including the rich. I would be much happier in a society where no one paid more than 10% in taxes and we made government fit that revenue.

Posted by Ziptang | Report as abusive
 

It would help the consistency of Redisforfools argument if he would cite a few of the “pages of history” with which he claims he has such familiarity.

BTW – is the red in his name the old red or the new red?

Posted by paintcan | Report as abusive
 

“businesspeople like Mitt Romney shouldn’t be blamed for paying low taxes — that’s the government’s fault. ‘You change the law, and they’ll pay the taxes,’”

Right.

See the issue here is that my congressman, your congressman (the government) doesn’t care that I want the law changed. He (or she) reports to the “plutocrats” and not the people. And the plutocrats don’t want the law changed.

And why should they? I can’t give them a million dollars or set-up a “super-pac” that will buy them re-election. They don’t work for me, they work for the rich that put them there.

This is not a democracy or a republic. It’s a government bought buy the rich for rich, a plutocracy.

And who’s fault is this? Well arguably my fellow citizens who are too ignorant, uninformed and well perhaps not smart enough to realize they’re being fooled.

They get all their information from TV commercials.

It’s, perhaps, the single biggest reason there’s an obesity epidemic in America – the TV tells you Burger King is good for you, and like lemmings they stuff their faces with “super-sized” burgers.

The same TV tells them Obama is a commie and Mitt Romney wants to kill the enemies of freedom…whatever that is (freedom)?

Posted by FoxxDrake | Report as abusive
 

Nothing better than talking finance with a beautiful woman who is just as smart as you are and then some.
Nice job Chrystia
On the other hand a nice scotch and a sunset might compare briefly.

Posted by SeaStar1 | Report as abusive
 

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