Taxing the Wealthy won’t work. A Crypocurrency might. (Part 1)

I spent 4 years working at a major bank in a role that effectively made me the personal CFO for wealthy families.  It was my responsibility to coordinate all things finance, from their investment portfolios, to their tax planning, to their wills & estate.  I really enjoyed what I did, and I only worked with clients that I chose to take on, so I really liked my clients too.  Most of them were the ‘top 1%’ but almost all of them had come from humble beginnings, worked super hard, succeeded at their craft, were good to their families, and did plenty of philanthropy.  If you didn’t know how much money they had, you’d have little conflict calling them good people.   But in having worked so hard to get to where they were, and having little to no confidence in government spending, they weren’t interested in handing over their hard earned money back via tax dollars.  For that reason, just about every client had a full tax plan done for them by high level accountants and tax lawyers.  We used to counsel our clients that avoiding taxes is legal, while evading taxes is illegal.  There were some grey areas, but we encouraged them to avoid those too.  Even so, they barely paid any tax.

It was while I was working at the bank that I also first discovered just how uneven the distribution of wealth was.  I grew up in a poor neighborhood so I generally assumed that everyone around me was always better off than I was, and I was just in the process of catching up.  But then I found this YouTube video:

 

Using data from 2009, it painted a very real picture of how wealth is allocated in today’s America.  As soon as I saw that, I knew that this was a very real problem and started trying to figure out what I could do to help.  I knew that the lack of financial literacy in the bottom 90% was a big factor so I started holding financial literacy seminars in my neighborhood and teaching a finance class at my old high school.  The data was collected in 2009.  I was teaching these classes between 2013 and 2015.  Today, things are much worse.

And I’m that much more motivated to come up with a solution to the problem.

When you see how much wealth the top 1% control, most people would agree that it’s an issue but I don’t think people fully understand why.  Wealth is not the same as money.  These billionaires don’t have billions of dollars in the bank.  Cash is understood to be an asset, and if it’s just sitting around, it’s losing ground to inflation.  So people tend to keep as little cash as possible, and leave the rest of their money sitting in a diversified portfolio of assets.  For the billionaires, that’s real estate, businesses, stock portfolios, gold, art, and just about everything in between.  The problem has little to with how wealthy they are or how much money they earn, it’s about how much of the nation’s resources they control.

One of the fundamental concepts within capitalism is competition.  When capitalism is running as intended, there’s a diversity of thought, a competitive market place of ideas, and those who can execute on the best ideas tend to win.  When the best ideas we can come up with are what become the businesses of our economy, we all win.  But that’s not what we have today.  What we have today is a failed capitalist state.

I’m someone with no shortage of business ideas and people often ask me why I don’t start my own business.  Well… people usually save up for that right?  Work a decent paying job for while, save up some money and open a business right?  Well, in an economy where 80% of people are living from paycheck to paycheck, I guess saving up to start a business isn’t exactly an option that’s available to everyone.

Well what about getting a loan from the bank?  Well the bank isn’t interested in giving people opportunities as much as it’s interested in guaranteeing that it’ll get it’s money back.  Businesses don’t have any guarantee of success, so they’ll ask for a personal guarantee.  Since most aspiring entrepreneurs today don’t have savings let alone assets, the banks aren’t interested in lending money to them.  For those who have scraped enough together to own their own home, the bank will gladly lend you the money to start a business.  They’ll also take your home if your business fails. 80% of small businesses fail within the 5 years year.

What about getting an investment from friends and family?  Well most would want to see you put your own money in first. If you’ve managed to do that, you need friends and family who have enough money to make a high-risk investment into your venture.  If you have both, chances are you’re closer to the 1% than you think.

What about getting investment dollars from a venture capital firm?  Well most would like to see a business that’s up and running already.  If you’ve managed to get that far and have one of the few businesses they’d like to invest in, they’re likely to take a predatory stake in the company to mitigate their risk.  Congratulations, you’ve just circumvented the control that the top 1% has on our nations resources… by begging them for money, and then giving them a significant part of your business, on their terms.  This is all wrong.  When the top 1% control the vast majority of the country’s resources, they get to choose where that wealth goes and who has access to it.  When you can’t compete without resources, that reduces competition.  When there’s no ability to compete, people are less inclined to come up with great ideas… because it’s just too hard to get it past the idea phase.  And that.. is a failure of capitalism.

So how do we fix it?

Some would think that the wealthy aren’t paying their fair share of taxes, so why don’t we just tax the wealthy?  How about a 70% tax rate on income over $10 million? Or a tax on their assets? Or change the tax brackets… or something!  When I see these ideas being put forward, I’m hearing someone who is working with the right motivations, but the wrong understanding.

A 70% tax rate on incomes over $10 million? Easy, just don’t pay yourself more than $10 million in income in any given year.  When you’re a billionaire, your entire life can be structured as a company expense and you have very little need for personal income.  A tax on assets?  Easy, just move the ownership of the asset into a structure which isn’t subject to tax.  None locally? All good, just move them off-shore.  I don’t think the general public or the politicians appreciate just how well the tax system is designed for wealthy people who don’t want to pay tax.  I wonder how that happened…

I think that when the general public sees this behavior, they get upset.  Us normal people who are barely getting by are forced to pay our taxes, while these rich people who have more money than you can spend aren’t paying their fair share.  Well.. why is that? I don’t think it’s just greed.  Why would so many of the world’s high profile billionaires be giving away so much of their money if they were so greedy?  At least part of it is that they don’t trust the ability of the government to spend effectively.  All things considered, they’re probably right.  If the government were to confiscate all the wealth from all of America’s billionaires, it would cover government expenses for less than a year.  It’s like making a donation to a charity and finding out that most of that money goes to the people running the charity and not the cause which the charity is supporting.  I can’t help but think that the wealthy know that the government works the same way and avoids giving them money because of it.  At least with philanthropy, you have a little more control over how that money is spent.

The reality is that our current tax system is so complex and filled with so many loopholes, that the wealthy will always find a way to avoid paying taxes.  And if we make things prohibitive locally, there’s no shortage of countries which are willing to show preferential treatment to someone who is willing to bring billions of dollars with them.  Think about Amazon’s approach to finding a new ‘HQ’ and hunting for government subsidies.  To make it worse, it’s these same billionaires who are funding the elections of what are supposed to be *our* elected representatives.  That means that laws and regulations will continue to shift to their favor.  There’s a joke that if American’s didn’t have estate tax, the wealthy would never pay tax at all.  Well, it should come as no surprise that politicians, including our current president, are keen to eliminate that estate tax.

The first solution I had to this problem was tax reform.  A complete overhaul of the system that would make taxes simple and easy to file on your own.  Something that was so easy and obvious, that there would be no room for loopholes.  I think there’s probably a way to do it… but it’s not something I’m capable of figuring out right now.  Too complex.  So what do I do when things are too complicated?  I make them less complicated.

The real special sauce behind capitalism is a meritocracy, where the best ideas get the most resources.  We want someone like Elon Musk to have all the support and resources he needs because what he’ll build with them will likely benefit us all.  But not all of us are like Elon, and some of us have to give up a little, so someone like him can have a little extra.  And it’s not because we think he should have bigger houses or fancier vacations.  The little bit that each of us gives up, goes to someone developing things like solar energy, or electric cars, or space travel… because when they do, all of us win.  So for all us to be best off, there must be an unequal distribution of resources.  But how do we create systematic inequality, which truly benefits everyone?

What about a crytpocurrency?  One which had a distribution curve built into it, and automatically rebalanced itself?  What if the currency itself always assured that those on the low end of the spectrum could always afford a standard cost of living, and those on the high side received more resources than the average person?  And that our best and brightest generally had everything that they needed?

Wouldn’t that be something… I’ll take a crack at mapping it out in Part 2.

I’m Back.

I’ve been writing in this journal for about 18 months now and throughout that time I’ve taken a few small breaks here and there.  I wish I could say it was for a lack of time but that’s not the case.  It’s actually the opposite.  For the last several months, I’ve had an excess of time.  And I’ve learned that I struggle under those conditions.

For about as long as I’ve been writing here, I’ve been employed by a start-up that was extremely well positioned to do very big things in an industry that is likely to take off like a rocket.  I was genuinely excited.

I came from the finance sector, having worked in wealth management at one the most recognized banks in the world.  It was a rather conservative work environment where challenging the status quo would put you on the outs.  At my core, I’m constantly looking for ways to do things better.. and it just wasn’t a fit.  So I thought I’d test the waters on the other side of the spectrum.  Went from a massive company to a start-up.  Went from a 3 piece suit dress-code to a keep your suit at home dress-code.  Went from an overly conservative work environment to an overly liberal work environment.

I came in with the expectation that a far-left work environment would be all about support, individuality, openness, and being kind to one another.  I was mistaken.  I experienced more prejudice at that job than I had in any other work environment and it was deeply frustrating.  Despite being a straight white male, I grew up as a minority and experienced plenty of racism first hand.  Sometimes it was directed at me, sometimes it was a friend, sometimes it was a friend making the comments, sometimes it was me making the comments.  But we were kids.  Most of the time, we’d poke fun at anything available, just for the sake of teasing.  But it seemed like we had grown out of it by the time we were adults. Spending most of my time in environments which at least attempted a meritocracy.. it had been a long time since people wrote me off because of what I looked like.

I was told that because I was white, I was raised to be a racist.  I was asked multiple times why I drive an SUV (despite my last car being a hybrid).  It was suggested that the things I had learned in the ‘corporate’ world were inherently wrong and didn’t apply to their business.  I was encouraged to embrace crystal healing while told to keep my religion of science to myself.  Language like ‘pushing’ an initiative out to the staff, ‘hustling’ to get something done, or ‘fighting’ for favorable regulations would trigger the people around me, ending in a drawn out conversation about how my language is racially insensitive and inherently oppressive.  It drove me bonkers.

I did my best to understand what was happening and why it was happening.  It was clearly connected to the culture war between our current extreme political ideologies.  I was being seen as the enemy despite agreeing on most major issues.  Instead, it was like they were actively looking for flags or triggers which would allow them to cast me as the other.  Ok… Fine. I’ll kill ’em with kindness.  I was always careful to listen, always careful to apologize for how others felt as a result of what I said, and always careful to explain that while they may have taken offense, none was intended.  With the staff, it worked like a charm.  One even approached me after work one day and apologized for any subconscious prejudice they may have shown towards me.  As someone who was gender-fluid and had experienced a great deal of bullying in his life (from people who probably looked a lot like me), I understood where his pain came from.  I thanked him for stepping up and telling me something that clearly wasn’t easy, and then let him know that he had never been anything but kind to me.  Maybe awkward cold shoulder here and there, but really, barely noticeable.  We’ve gotten along quite well since then.  I wish I could say the same for the founders.

The founders are in their 50s, married, and very representative of a far-left ideology.  Had I not run into it myself, I may still be second-guessing if it existed in the way the right characterizes it.  And this is from someone who would probably fall left of center if I had to be characterized.  But because their ideology didn’t resonate with me, I was eventually told, “maybe you’re just not our people.”  That was the end of July.

There’s more to the story than that, but I think the picture has been painted.  Instead of abandoning the opportunity in front of us, I told them I’d take some time to do some soul searching and appreciated their patience.  I wasn’t willing to abandon my common sense or integrity either, but I wanted to be open-minded in how I looked to move past this.  I spent a few days away with some female friends, looking for some female insights.  I did a few days at a horse ranch where went on my first mushroom trip.  I spoke to mentors and advisers.  And everything led me back to the notion that I was probably be quite reasonable, and was caught between a rock and a hard place.  Compromise who I was for the sake of harmony in that work environment, or keep up the kill ’em with kindness approach, hoping they’d eventually come around.

The other unfortunate dynamic, or perhaps most unfortunate dynamic.. is that I was up against the founder’s dilemma.  Essentially, entrepreneurs looking to build a big business eventually need to choose between efficiency and control.  If your business is growing fast, there’s a good chance it’ll outgrow the skill sets of the founders within the first few years.  That’s when the founders need to bring in new talent, delegate the responsibilities that others are better equipped to accomplish, and then settle into a role within the company that best fits them.  Or if you prefer to retain control, you’ll avoid all of that to make sure nobody messes with your ‘baby’.  I’ve run into the latter.  Extremely frustrating for someone who was brought in for the eventual CEO role.  They had conveniently forgotten that though.

Frustrating for sure, but not nearly as frustrating as what followed.  They requested to stop weekly meetings.  They stopped involving me in key decisions.  In a lot of ways, they just stopped communicating.  Yet I was still drawing a modest salary from them and trying to stay as busy as I could behind the scenes.  Realistically though, I managed about 10 hours of work a week… probably could’ve been 3 if I had the need to streamline things.  I was overcome with boredom… and not the fun kind.. but rather a lack of opportunity to apply myself.  And man did that mess  with me.

I could see so much that needed to be done and I was more than capable of taking on those responsibilities.  But rather than making use of one of their best assets, they seemed to avoid me at all cost.  The only reason I didn’t start looking for other opportunities is because I knew that we’d be establishing a board of directors shortly and that the board was likely to hire me as CEO.  With that dynamic, I was optimistic we could all be successful and enjoy working with one another.  I suppose it was an exercise in patience, but far from an easy one.

With respect to cannabis, there’s a quote that resonates deeply with me, “I’m not an addict, I’m a user.  I alleviate boredom and occasionally heighten my thought processes.” That would be Cumberbatch’s Sherlock, one of my favorite fictional characters.  When I’m functioning at full speed, I seem to have little interest in cannabis.  It gets in the way of me getting things done at the level I want to do them at.  But when I have nothing to do… it’s like I want to reduce my potential so it’s more in line with my output.  Working 10 hours a week, that’s when I start smoking a lot of weed.  It dulls the frustration of not having anything to do.. but it’s a slippery slope.  At first it’s just an evening thing.  But when you wake up with nothing on your schedule and shit-all to do… wake-and-bake seems like a pretty good option.  By October, I was smoking about 4-5 joints a day.

And I suppose I shouldn’t be too hard on myself, it’s not like I was doing nothing.  I was still doing BJJ, still doing yoga, still playing soccer, still consuming a ton of information, still studying the cultural and political climate, and still thinking deeply about the world and where it’s headed.  But for me, it’s like frosting without the cake.  These are all things I’d want to do in addition to a career.  As a result of the perpetual fog caused by heavy cannabis use, I was disinterested in reading my books.. disinterested in writing.. disinterested in a lot of things that I think are quite important to me.

The truth is that I don’t know what the future holds for me at the moment.  Last month, the biggest company in our entire industry approached us looking to buy us out.  As expected, the founders didn’t mention me in the acquisition talks.  Since I owned equity in the company, it was looking like I’d get paid-out somewhere between 6-7 figures and be on my way.  While I’d prefer the CEO role in the business under the bigger company, I was happy to take the consolation prize.  But then the acquisition fell apart… frustrating when I was never involved in the discussions.  And now the investors are questioning the ability of the founders to run the company in a responsible manner.  They’ve met among themselves over the last week and have decided that they’d like me to sit on the company’s board, have financial oversight, and engage with our investment banker to sell the company to someone else.  That conversation should take place sometime this week.  It’ll be very interesting to see how the founders react to that.

In the meantime, I don’t know what my role will look like with them.  Nor do I know where I’m headed next.  I connected with a friend who was also in the industry and we got about 90% of the way to working together.. but a municipal election went the wrong way and now we need a few more pieces to fall into place.  If they do, I’m off to the races.  If they don’t… it’s not a thing.  I’ve already started on a consulting website for my space.  Since it’s new, I’ll be among the first.  Might work.  But maybe I go check in with the recruiter I met in September who said he’d love to place me.  But in all seriousness, I’ve been obsessing about something else.

A few years ago, I started writing a screen play.  It started with the rise of Nixon 2.0 and was supposed to take place after 8 years of Hillary.  The idea was that culture and politics tends to experience a pendulum effect.  After 16 years of Obama and Hillary, we’d have something in the opposite direction.  I abandoned the script after Trump was elected.  I didn’t anticipate Russia or the electoral college.   Since then, I’ve still been searching for an outlet for my ideas.  This blog helps, but these are just daily thoughts that I’m looking to refine and articulate.  I wanted something bigger.. a project I could sink my teeth into.  I wanted to write a book.

This book has been on my mind for over a year now.  I’m not ready to write it just yet, but I’m getting close.  And I’m starting to obsess over it.  I know this from having seen it in myself and others… a healthy obsession is usually a sign of something you should absolutely put your time towards. Lebron is obsessive about basketball, Crosby is obsessive about hockey, Buffett is obsessive about investments.  This book is calling to me.

To get there, I need to accomplish a few things.  I need to stop consuming that much cannabis.  We’re now 5 days into sober November.  My body needs to recover from the stress load it was under.  I got a few supplements from the naturopath, cleaned up my diet, and am stepping up my physical routine.  I need to get my mind back to the level of clarity where I can do my best work.  I’m back on my brain training game, reading, and writing.  Daily.  But perhaps most of all, I think I need clarity on what my near future looks like because I don’t want to dive into this only to leave it on the shelf as my career takes me in another direction.  For that, I suppose I’ll need a little more patience.

Universe… if you’re listening.. I got a hell of a book in my head that I’d like to put into the world.  I think it’s going to do a lot of good.  If you could make sure there’s a path available for me to get there, that would be greatly appreciated 🙂