Taxes and Inequality in Greater Greater Washington

The Washington City Paper has a profile of David Alpert, who runs the excellent Greater Greater Washington blog (and has been known to read Bottom-Up on occasion). The City Paper says Alpert has used the GGW blog to become “arguably the District’s most important advocate on issues of planning and development.” By focusing on specific local issues like parking mandates and streetcar lines, Alpert has made Jane Jacobs-style urbanism a force to be reckoned with in the DC area.

As Matt Yglesias points out, Alpert represents a new model of political engagement, using the new tools of the Internet to assemble a local political coalition that would have been hard to create using more traditional tools. But I was also struck by this passage:

In 2007, Alpert’s future wife Stefanie got a job in the D.C. office of law firm Wilmer Hale. The couple decided to move, and Alpert left Google behind. “When I started at Google, if you had an idea, you could run it by Larry or Sergey at lunch,” Alpert says, referring to company founders Larry Page and Sergey Brin. “By the time I left, it was 15,000 people, and there was a lot more process…Getting a product done was more about navigating this process and navigating the bureaucracy or the competing interests, as opposed to spending your time coming up with ideas.”

Of course, it wasn’t quite as scary for Alpert to quit his job as it might be for most people: Though he declined to elaborate on his personal finances, let’s just say that six years at Google left Alpert sufficiently well off that he wouldn’t need to scour the want-ads for a long, long time.

This got me thinking about tax policy. I gather that Alpert started at Google around 2001 and presumably made a ton of money when Google had its IPO in 2004. If we still lived under the tax regime of the 1970s, and his payout was large enough, he’d have paid the top marginal rate of 70 percent on most of it. In the 1950s, it would have been 91 percent. In contrast, the top marginal rate in 2004 was just 35 percent.

One of the perverse things about the confiscatory tax levels that prevailed in the mid-20th century is that it created systematic disincentive to do high-risk, high-reward entrepreneurship. Given a choice between a startup with a 20 percent chance of paying $10 million after 5 years, or working a steady corporate job at $100,000/year for 20 years, there’s a good case for taking the former option. But if the $10 million is going to be taxed at 70 percent (so you’d only get $3 million if the business succeeded), young, smart workaholics are far more likely to take the safe corporate job with the lower marginal tax rate. And of course things look even grimmer if the top rate is 91 percent.

Notice also how hard it would be for someone to do what Alpert is doing without being in his financial position. GGW is incredibly successful as a vehicle for citizen involvement, but I doubt it gets enough traffic to pay anyone’s rent. And it would be incredibly difficult to persuade a third party like a foundation or think tank to pay someone to do a niche blog like GGW. Only when the same person has both the relevant knowledge and interests and the financial resources to focus on it full-time is this kind of work possible.

This is a point I’ve made before about people like Mark Shuttleworth and Jimmy Wales. The effectiveness of philanthropic efforts is a function not only of the amount of money being spent but also of who’s spending it. People tend to be most effective when they’re spending their own money on stuff they’re passionate about. Which means that there are large benefits from the fact that, thanks in part to changes in tax law, millions of Americans are now wealthy enough to pursue their idiosyncratic (and maybe not very profitable) passions full-time.