DECEMBER 1995 · VOLUME 16 · NUMBER 12
E D I T O R I A L
Sol Price pioneered membership-based, large-volume, deep-discount stores when
he opened up the first Price Club store in San Diego, California in 1976. The
gamble proved enormously successful. Within 10 years, Price had 25 stores
generating $2.6 billion a year. Price Club merged with one of its imitators,
Costco Wholesale Corp., in 1994.
Price Club made Price rich, securing him a place on the "Forbes 400" list of the wealthiest individuals in the United States. Most of the wealthy use the disproportional influence they buy in Congress to shift an even greater share of the tax burden to those who live on salaries and wages. Sol Price is an exception. He says that the rich should assume much more of the U.S. tax burden, if for no other reason than enlightened self-interest.
Multinational Monitor: How fair are U.S. taxes?
Sol Price: The tax laws favor the wealthy and the chasm between the middle class and the wealthy is widening. The fact is that only the middle class pays high income taxes and payroll taxes [Social Security and unemployment taxes]. They are the only group whose total tax bill has gone up in the last 40 years. Although income taxes and estate taxes purport to be progressive, the truth is that rich people avoid paying much of these taxes through so-called "tax expenditures."
MM: What are tax expenditures?
SP: These are tax exemptions, tax deductions and tax credits. In 1995, tax expenditures amount to $450 billion, almost as much as the United States spends on the military and interest on the national debt combined. In the next seven years, these tax expenditures will amount to about $4 trillion -- almost three times what is needed to balance the budget with no cuts in spending and with no new taxes.
Some examples of tax expenditures include tax breaks for corporations (corporate welfare), low capital gains tax rates, tax deductions for charitable contributions to personal trusts or foundations, tax-free interest on bonds, accelerated depreciation, fringe benefits and pension plans. These are hidden entitlements that are not generally discussed with entitlements such as Medicare and welfare. Warren Buffett [whose stock picks have brought him an estimated net worth as much as $12 billion] has called these benefits "food stamps for the rich."
MM: Why is a wealthy person like you concerned about tax
inequities?
SP: I am concerned about the wide split between the middle class and the wealthy. I want the system to survive. I am afraid that too much accumulation of wealth in a few hands could result in a severe reaction.
The reason I'm a Democrat is that all systems ultimately deteriorate, but I think the Democrats will keep the system going longer than the Republicans. I think the Republicans just don't understand that you've got to let some steam out of the kettle. If the rich get everything they want, you're going to get a demagogue who comes along and says, "the rich have done it to you," and take it all away.
MM: The Republicans characterize such attempts to shift the tax
burden as being politically taboo tax hikes.
SP: The Republicans have done a wonderful job of focusing on raising taxes, which appeals to the middle class, because those people have had their taxes raised. But they say your taxes have been raised to support all these little girls that are having babies and for foreign aid and inefficient domestic government. They've deflected any attention to where money is really going. According to the [Washington, D.C.-based] Urban Institute, tax expenditures are growing at least as quickly as Medicare expenditures.
House Majority Leader Dick Armey [R-Texas] has given Democrats a sensational issue. His proposal says that the only people who will pay income tax from now on are working people. The only income tax will be on earned income. Investment earnings will not be taxed as income.
Assume you have three people: an athlete, a career person such as a doctor or lawyer and a third person who doesn't work but who has income from dividends and interest and real estate. Assume that all of them have exactly the same family circumstances and income: $500,000. When I ask my Republican friends what they think is fair in this scenario, 95 percent of them say that they should all be taxed the same. When you tell them that under Armey's proposal the ball player and the career professional will pay whatever the income tax rate is and the third person will pay nothing, they are shocked. That's exactly where they're headed under Armey's proposal.
Income alone should not be the criteria for raising revenues, especially when you exclude so many people and so many things. Take somebody like Warren Buffett who, for one of the real capitalists, is a very enlightened man. He's worth now about $11 billion to $12 billion, lives relatively modestly -- eats cheeseburgers and Cokes and doesn't draw a big salary. His plan is to sink his whole fortune into his own private foundation [the Omaha, Nebraska-based Buffett Foundation], which works on population control. Many people think this is a worthwhile thing. But, of this whole $12 billion that he has accumulated in his lifetime, none will ever be taxed. All he pays taxes on is the modest amount he draws in salary.
Just to show you how crazy this is, there is a guy named Arthur S. DeMoss who died a few years ago and left maybe $300 million or $500 million to a private foundation [the Pennsylvania-based Arthur S. DeMoss Foundation] that opposes abortion. So the government collects no estate tax from this. And the perks that the family has when they set up these private foundations are almost the same as though they retained the money directly. They have prestige in the community, they give away money and they travel around in jets. Our law has allowed people to take what should go to the government and use it for their own purposes, some of which we may agree with and others that we may not.
MM:What is your alternative?
SP:If I had my way, we'd have a second way of computing a minimum tax that would be based on wealth. You'd compute the alternative minimum tax and then you'd compute your tax based on wealth. You'd maybe have an exemption of $500,000 or $1 million and then have a 1 percent to 2 percent annual net wealth tax above that amount. You would tax whatever brought in the most government receipts.
MM: How would Armey's plan affect the amount you personally pay in
taxes?
SP: Armey's tax proposal would reduce my income tax by about 95 percent. Suppose my income was $12 million and my personal expenditures were $200,000 to $250,000 a year. Those expenditures would be all I would pay taxes on. The rest of it all gets reinvested.
How many rich people do you know who have income in real estate or dividends and who spend all of it? Most rich people spend, maybe, 5 percent to 10 percent of their income. The rest gets plowed back in.
So I don't understand why they think an income tax cut is going to increase saving. The wealth tax would have nothing to do with spending. At the end of the year, you would add up what your net wealth is and pay the 1 percent to 2 percent tax and that's it.
MM: What opposition has your proposal met?
SP: I've tested out this idea on all kinds of Republican friends. When it comes to wealth, that's it -- you're attacking the bastion of what they're all about, everything they love.
MM: Have any Democrats reacted favorably to the idea?
SP: People like Senators Paul Wellstone [Minnesota], Paul Simon [Illinois], Russell Feingold [Wisconsin], Bill Bradley [New Jersey] ... but once you get into the Democratic Leadership Committee group [representing the conservative wing of the Democratic Party], it's not easy.
MM: Has anybody talked about introducing such a bill?
SP: I've spent a lot of time with these guys. People in Congress don't have time to think. Between raising money for the campaigns and meeting with constituents and special interests and running to these stupid hearings ... the knowledge that any of them have is so superficial on almost every issue, it's really terrifying! I'm not being critical, they're just too goddamn busy to think! Everything they think about is short range, "What does this mean to my campaign?"