The Mind of Wall Street by Leon Levy

The Mind of Wall Street by Leon Levy

Author:Leon Levy
Language: eng
Format: epub
Publisher: PublicAffairs
Published: 2010-06-29T04:00:00+00:00


Unlocking Value

TAX CODES REFLECT the values of a society. It is no accident that the French produce great wine. The French tax code used to favor the producers of the spectacular first-growth wines, who were taxed at a lower rate than those who made vin ordinaire. The tax code thus gave producers an incentive to improve their wines. I have thought about the myriad ways in which money flows toward tax incentives and away from high taxes and have concluded that taxes play a profound role in shaping history. Give officials control of the tax code and they can change society, either deliberately through the wise use of incentives or, more commonly, inadvertently through a misunderstanding of how people react to taxes.

Until the 1990s, New York City taxed unincorporated businesses, a levy that fell most heavily on freelance writers, artists, actors, and other self-employed creative people just as they were becoming successful. Using the logic of a politburo, the city council legislated a tax on incomes above $60,000. The unintended effect on New York was to drive these people away just when they could have made a real contribution to the economy and life of the city.

Many evaded the tax, some ignored it, and some moved away, enriching other communities at New York’s expense. Despite the occasional op-ed piece in The New York Times, the tax stayed on the books, proving another point: Once enacted, taxes are among the most durable things on earth.

Government ingenuity knows no bounds when it comes to taxation. Gabriel Ardant, a French historian, wrote a two-volume study, Histoire de l’Impôt (1971), tracing the role of taxation in history. I revived my high school French and, armed with a dictionary, struggled through the two volumes. I tried to make my life easier by offering to subsidize an English translation, but I could not find an American publisher willing to take on the project.

I waded through Ardant’s book in part because Eugene Linden (my collaborator on this book) and I had begun researching a book on taxes as a force in history. We put it aside when it became apparent that such a project was a life’s work. I thought it should be someone else’s life. Still, perhaps someday a great and far-sighted publisher will beg us to return to that project.

On the one hand, governments are usually efficient at getting what they perceive to be their fair share of citizens’ money. Ardant discovered that the tax authorities in ancient Egypt would wait for the highest flood of the Nile to do their assessments, because at those times livestock was crowded onto high ground, making it more difficult for farmers to hide wealth from the Pharaoh. On the other hand, the tax laws offer a cornucopia of opportunities for profit. When the U.S. government decided that uranium was a strategic metal, Congress loaded on tax incentives to encourage entrepreneurs to strike out and find the stuff.

A flat tax (of, say, 17 percent for all taxpayers) would be


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