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Mike Donahue is a hard worker

10302006_034.jpgLots of people are making fun of financial adviser Mike Donahue's cry for understanding, and for lower tax rates. I will join them.

Since I graduated in 1983, I have been in straight commission sales and have had many 60- to 70-hour work weeks. No secure salary, no big promotions, no pension — just me profiting through helping others while being subject to the swings of the economic cycle. The first 20 years were tough, but it's finally starting to pay off ...

I have more than most only because I've worked harder than most and because I am a saver.

"Just me profiting through helping others." And profit Mike did: Now he makes more than $250,000.

I don't want to get into a long argument about the role of luck in outcomes. Suffice to say that Mike -- who's pictured above -- is a white guy in a rich country who graduated from college and rode a series of unsustainable booms in the financial sector that ultimately did terrible harm to the economy.

But one of the things that people need to think harder about when they pop off about this stuff is the difference between comparing the incomes of people in the same sector and comparing the incomes of people in different sectors. Hard work might account for some of why Mike makes more money than other financial planners. But yesterday, I rode in a cab driven by an African immigrant who works during the day at a printing press. Hard work doesn't account for why Mike makes more money than that guy.

What does account for it, in part, are rules. The rules of the game help decide who wins the game. If basketball hoops were five feet tall, then the sport wouldn't be dominated by giants. Same goes for policy rules. The Bush tax cuts, for instance, made Mike richer than he would've been if, say, he was a financial planner in Denmark. Alan Greenspan's low interest rates contributed to Mike's financial well-being. Government policy that encouraged the spread of universities helped Mike. And if you look at the demographics of Congress, the rules are made by, well, people like Mike. Andy Stern got at this well in our interview yesterday.

For people at the top, since they get to make the rules, the rules work really well, no matter how hard they work. Whether you were born rich and the estate tax is reduced to virtually nothing, or you get legacy admissions into elite universities, there's a lot of history and self-perpetuation of the rich to continue to be rich that has nothing to do with hard work.

Later in the op-ed, Mike drops a bomb. "My patience and pocketbook are reaching the breaking point," he complains. "I am not for equal outcomes regardless of effort. I'm tired of being the mule. Maybe I will quit and live on the dole for awhile." Maybe. But if he thinks $250,000 is an equal outcome, he should give living on the dole a try. He'll soon learn that the rules written for people who aren't like him don't feel all that equal after all.

Photo credit: Donahue Wealth Management

By Ezra Klein  |  April 15, 2010; 11:57 AM ET
 
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Comments

There are an awful lot of people TALKING about going Galt an awful lot but for some reason they just. won't. jump. Jump, you @#*#ers. Go Galt already!

Posted by: Jenn2 | April 15, 2010 12:02 PM | Report abuse

It was several years ago now that I heard an interesting report on NPR about the likelihood a person in the US would end up in the same class in which they started. It turned out that in much of Europe class mobility was higher than in the US, that in this country if you started life poor, you were most likely to end life poor, whereas in many other developed countries, starting life poor was a less significant indicator of where you'd end up in life. In other words, the American Dream was easier to realize outside America.

Posted by: bsimon1 | April 15, 2010 12:05 PM | Report abuse

That's no moon... that's Mike Donahue's ego!

Seriously though, it's good to know that people who work in finance are objectively better people than those that teach, do manual labor, patrol streets, etc.

The guy's industry is also dependent on its ability to manipulate the tax code, so he has even less reason than most to complain.

Posted by: etdean1 | April 15, 2010 12:08 PM | Report abuse

This is a rather ad hominem argument: "He'll soon learn that the rules written for people who aren't like him don't feel all that equal after all."

This is a complete evasion of the substantive philosophical claim around individual rights... although your ruminations around policy rules suggest that the government should have plenary power to set them in a way in complete disregard to them since Mike's income level is completely arbitrary.


And anyway, what is your substantive point, your cab driver and Mike should have equal outcomes because they both work so hard? If not, why are we pursuing policies to that end?

Posted by: cdosquared5 | April 15, 2010 12:13 PM | Report abuse

CDO, the point is that the "I work hard don't take my money" reasoning is bunk. That cab driver/printer in all likely hood works way harder than Mike for far less money. By Mike's reasoning the cab driver should be far wealthier than Mike is. It's not "hard work" that made Mike wealthy, it's pure luck, and it's a rigged game that keeps him wealthy. The least he could do is pay the pittance we ask of him as a citizen of the United States of America.

It's funny, paying your taxes used to be considered a patriotic thing. It strengthened your country.

Posted by: EricS2 | April 15, 2010 12:26 PM | Report abuse

"But yesterday, I rode in a cab driven by an African immigrant who works during the day at a printing press. Hard work doesn't account for why Mike makes more money than that guy."

No, but it does account for why there is a very, very good chance that your printing-press operating taxi driver will being doing a lot better 10 years from now than he is today.

Mike Donahue's hard work aside, arguments that dismiss or ignore a fundamental truth--that harder work tends to lead to better outcomes, and that combining hard work with thoughtful decision making and planning almost always leads to better outcomes--in favor of nitpicking tax policy kind of, well, miss the point.

Will a higher tax on $250k + incomes act as a disincentive to hard work? Probably not. Will it motivate Mike to live on the doll? Probably not.

But is any individual likely to be better off, in ten years, for having worked harder, for having planned more, for having been more thoughtful and considerate of their decisions? Irregardless of taxation or government policy?

One thing I can do without, from anybody, forever, is the threat to leave. The country, the system, whatever. You aren't serious. You aren't going to go on the dole, you aren't going to move to Canada or France, you aren't going to go Galt. You aren't Atlas, and you aren't going to shrug. Fight progressive taxation on principle, sure. But don't speculate on somehow deserting the system (or the country, Alec Baldwin, Michael Moore, et al) that helped make you wealthy (and fat). Because you aren't serious, and "Ima gonna take my ball and go home" solves nothing and not particularly serious.

That being said, putting your nose to the grind stone, right now, is likely to do you more good in the long run than waiting for the government to do . . . well, anything.

Posted by: Kevin_Willis | April 15, 2010 12:40 PM | Report abuse

You're using stuff you learned from cabbies in your posts now? What, are you going to next grow a mustache?

Posted by: UberMitch | April 15, 2010 12:43 PM | Report abuse

Hard work likely accounts for most of why this guy makes more than others in his field. That being said, the mix between luck and hard work is something liberals and non-liberals will always disagree on. Within my personal network, my professional friends work harder and more responsibly than my non-professional friends. Given that most in my network grew up in fairly average, middle-class places, luck gave us that starting point, but hard work is what differentiates us.

Regardless, sentiment like this is due to the expectation set by Obama, and other liberals, that gov't can help the many via taxing the few. Now the few are getting angry. No one should be surprises.

Posted by: BeatKing11 | April 15, 2010 12:50 PM | Report abuse

Ummm, wow. Look. I work hard. I'm smart. I'm in Mike's income category, sounds like a fairly similar history (no inherited wealth, worked my way up, etc.). And yet, I ended up being [darn] grateful for where I am instead of PO'd I have to pay some of it back. Because, yeah, I earned a lot of it -- but I also got lucky and had a lot of support along the way.

When I was little, my mom was on food stamps for several years; my dad left, she decided she could offer us a better life if she had a Ph.D, and her fellowship didn't quite make ends meet. I was smart and always did well in school -- and also got the benefit of federally-insured student loans and work study, because her salary as an English professor couldn't possibly pay my whole college tuition. I went to a state school for law school -- a school that was funded for decades from oil royalties that the state dedicated to educating its citizens. I also happened to be in elementary school when Title IX was passed -- so I got the benefit of a relatively "new" equal opportunity at college and law school.

Am I happy that my taxes are going to go up? Not exactly (duh). But I figure it's my responsibility to pay back Uncle Sam for all those times that I couldn't have made it without his help.

Oh, and on the hard work = $$ front: give me a break. My mom's a college English professor. I went to law school because I wanted an EASIER job. And yet, my first year out of law school, I almost doubled her salary. Hard work is necessary but not sufficient for financial success.

Posted by: laura33 | April 15, 2010 12:52 PM | Report abuse

Kevin, my issue is that I don't know many, if any, liberals who truly believe that hard work doesn't account at all for success, that it can't improve people's situation at all, or that its shouldn't be encouraged. In this post, Ezra doesn't acknowledge hard work other than a hand wave of a sentence, but he does admit that it's a factor. And liberal leaders frequently propose policies which they believe reward working. Admittedly, they also propose policies to help those out of work, but I don't think those are necessarily in tension with each other.

Most conservatives, on the other hand, seem to me to fight tooth an nail against any acknowledgement that they have benefitted from large amounts of luck and institutional rules. Mike works hard, never acknowledging that people much worse off than him probably work harder. And though those other people may be better off in 10 years than they are now, due to their hard work, they'll never be as well off as Mike.

Posted by: MosBen | April 15, 2010 1:07 PM | Report abuse

If there's a hell, here's a big reason you don't want to go there. Imagine listening to this guy for an eternity.

Posted by: geoffcgraham | April 15, 2010 1:08 PM | Report abuse

It's not about effort, it's about results. If he worked 70 hours per week and lost money for all of his clients, they drop him, and he's out. I think he mentions effort just to balance out the claim that financial gains are "unearned income".

I work at least 65 hours per week, I can't remember the last time I had more than 6 hours of sleep, and I still find time to read a newspaper, but if my company loses money, I end up with nothing. I am taking that risk. The effort is worth nothing, it is only how much people are willing to pay for our products and services that matters in the end.

If you are deluded enough to believe, Ezra, that the "rules" somehow favor the financial planner over the tax adviser, I have to ask if you would pay your taxi driver the wages of a successful financial planner?

Posted by: staticvars | April 15, 2010 1:09 PM | Report abuse

Sorry, one more thing. DiA says that the Obamas earned $5,623,690 last year. I propose that if Donahue earned any less than that, he's disqualified from questioning anything Obama does. After all, if Obama earns more, it can only be because he's smarter and a better person than Donahue.

Posted by: geoffcgraham | April 15, 2010 1:11 PM | Report abuse

"Hard work doesn't account for why Mike makes more money than [an African immigrant taxi driver]" is a false equivalency. There are many, many more people with the skills to be taxi drivers than there are with the skills to be successful financial planners. The labor market is no less subject to the law of supply and demand than any other market; that is why financial planners make much more than taxi drivers, even if they work equally as hard.

Posted by: mike_w_long | April 15, 2010 1:13 PM | Report abuse

what laura33 said.

No one enjoys paying higher taxes, but to ignore or discount the advantages of being a white male in the US when he was growing up in the 70s-early 80s is to ignore the reality of US society. Since the article is behind a paywall I can't find out more about his circumstances, but he certainly benefited from socialist government subsidized public schools and universities (or private universities which get massive tax subsidies), drives on socialist roads and is going to get and use his socialized medicine and pensions when he hits 65 or so. If he is a financial planner, he benefits from the heavy hand of govt regulators that (sometimes) keeps the markets relatively transparent. If he has had any kind of medical procedures, he benefited from socialist govt funding of basic research. He benefits from oppressive regulations on food and drug safety. The list goes on and on. Now that he is in the top 5 % of wage earners, he is whining because any income ABOVE 250K is going to have a slightly higher tax rate. I bet that he pays less total tax as a percentage of his income than someone making 50K or less a year (median income). My heart bleeds...

Posted by: srw3 | April 15, 2010 1:30 PM | Report abuse

Bravo Mike Donahue! There is not ONE thing in this guy's argument that is unreasonable.

He works hard and pays gargantuan taxes-- I'd wager that on a dollar for dollar basis, Mike Donahue's tax contribution to this country probably dwarfs Ezra Klein's--yet Ezra Klein, with a chip on his shoulder easily as big as Mike Donahue's ego-- personally mocks this guy for making the most of cards he was dealt.

Why should a guy work 70 hours a week to have it all taken away? What's the incentive? How is it fair? Part of me hopes he puts his entire portfolio into tax-free munis and T Bills, works just enough to get his AGI under the 250k mark to avoid predatory taxation, and avails himself of all fo the government freebies that are now on the table. What's fair for one person is fair for another...

Posted by: Rex1000 | April 15, 2010 1:44 PM | Report abuse

Mike Donahue should STFU to put it bluntly.


That being said it should be made clearer that for the one Mike Donahue there are millions of people in that industry and similar industries that don't do nearly as well and scrape by although I expect they "scrape by" much better admittedly than your taxi driver.

Also those like Mr Donahue that own their own small businesses (I'm assuming he owns it via the name and that its a small business) take a risk every day as staticvars points out above. If a couple clients tell him to beat it then he's left with absolutely nothing and he won't have to worry about going Galt, he'll be living it as many financial planners have done over the last 18 months.

Posted by: visionbrkr | April 15, 2010 1:53 PM | Report abuse

srw3,
Is the argument that taxes paid should be roughly proportional to government benefits received or is it that if one has received ANY government benefit over the course of an entire lifetime the government is justified to tax them as much as they want? Or another way, is any tax rate up to 100% morally acceptable to you?

Posted by: cdosquared5 | April 15, 2010 1:56 PM | Report abuse

It's difficult to explain the topic to the average Mississippi worker, who for his work receives less than the average non-working Massachusetts welfare recipient; likewise, it's difficult to explain the topic to the average Mississippi worker, who for his work receives less than the average non-working Massachusetts Medicaid recipient spends on health care.

Without some penalty for non-work and reward for work, the situation worsens: by rewarding non-workers with income and a host of free services, the worker's product is devalued. I'd bet that those who felt free to say that rural residents could simply move to an urban area to find cheaper health care would bristle at the suggestion that an urban welfare recipient could simply move and find a job as a low-wage-earning, tax-paying lettuce picker.

Posted by: rmgregory | April 15, 2010 2:00 PM | Report abuse

cdosquared5: Is the argument that taxes paid should be roughly proportional to government benefits received

Huh? should earthquake, tornado, and hurricane victims immediately start paying higher taxes because they start using more govt services? Should the disabled start paying more in taxes because they use more govt services? How about orphans? Should we restart debt peonage so they can pay back the state's largess?

the argument is that with an income in the top 5% of all wage earners, paying 3-5% more tax on income over 250K doesn't seem all that unfair given the massive benefits this guy used getting to where he is now.

Posted by: srw3 | April 15, 2010 2:15 PM | Report abuse

@rmgregory: It's difficult to explain the topic to the average Mississippi worker, who for his work receives less than the average non-working Massachusetts welfare recipient;

Its actually pretty easy. The differences between the cost of living in the two states mentioned pretty much explain the pay differential as they are at the extremes on this scale.

"Without some penalty for non-work and reward for work, the situation worsens: by rewarding non-workers with income and a host of free services, the worker's product is devalued."

Its the old cadillac welfare queen trope straight from Reagandom. How many times does this have to be refuted? Have you ever tried to live on public assistance, with few possessions beyond your clothing, no car, no home, no money? Until you give it a try, stop demonizing people who are poor (sometimes through no fault of their own.)

Posted by: srw3 | April 15, 2010 2:34 PM | Report abuse

MosBen: "Kevin, my issue is that I don't know many, if any, liberals who truly believe that hard work doesn't account at all for success"

And I'm certainly not saying that. I just think we are sometimes to quick dismiss very simple, yet important, things when trying to make a particular point (or pillory a particularly clueless person).

I used to work in a circumstance where one of the owners at the time actually told me how lucky I was not to have to worry about custom building an expensive home or keeping up with the cleaning service, because it was all just so complicated. I'm familiar with the Mike Donahue attitude.

"And liberal leaders frequently propose policies which they believe reward working."

Agreed. The Welfare Reform under Clinton is a good example. At the time, I didn't think I would ever be pining for the bipartisanship of the Clinton administration.

"Most conservatives, on the other hand, seem to me to fight tooth an nail against any acknowledgement that they have benefitted from large amounts of luck and institutional rules. Mike works hard, never acknowledging that people much worse off than him probably work harder."

It's a fair point, although, reasonably, one only has so much time in which to make their arguments, and it's hard to make every qualification that they may be aware of. And they may think listing the qualifiers might hurt the clarity of their argument. I do not know. But of course there is luck (that's what happens when preparedness meets opportunity) and institutional support (where would we be without contract law?) and so on.

They might also argue those aren't infinite goods, but trade-offs, so having a government to ensure domestic tranquility makes his business possible, but then they regulate it oppressively so that it's difficult to succeed on hard work alone. Which can be true in some circumstances, though it probably isn't true for Mike Donahue.

I'm really just thinking, uh, "out loud". I worry over dismissing the value of thoughtful hard work, which benefits almost anybody in any circumstance, and the more of it the better. And almost anyone can improve their circumstances by making considered, deliberate decisions, doing a little goal setting, and then putting some elbow grease into it.

Maybe nobody is dismissing it and I'm worried for nothing. ;)

I just think the argument can be made that taxes can be raised on people making $250k+, or for a $1m+ wealth tax, without having to talk about how hard Mike Donahue worked. That's really not the point. Indeed, is Donahue saying it would be justified to tax his income at an extremely high rate, if he had not worked hard? So he's arguing for a very high estate tax, let's say?

Posted by: Kevin_Willis | April 15, 2010 2:43 PM | Report abuse

"There are an awful lot of people TALKING about going Galt an awful lot but for some reason they just. won't. jump. Jump, you @#*#ers. Go Galt already!"

This comment made me unreasonably happy. Thank you for that.

Posted by: slag | April 15, 2010 2:45 PM | Report abuse

Here's my favorite example of d*mba$$ conservative with a total lack of self-awareness about why we pay taxes:

http://www.thedailyshow.com/watch/wed-june-3-2009/moment-of-zen---craig-t--nelson-on-glenn-beck

Watch it. I'm pretty sure you'll enjoy it. :-)

Posted by: JERiv | April 15, 2010 10:23 PM | Report abuse

True story on how rules can skew the game.
While I was going to college, I worked summers in beach front hotels doing manual labor; janitor, laundry, that kind of thing. One year I worked as a bellman; earned a whole $1/hour plus tips (in a hotel where NOBODY tipped EVER). My main co-worker was an older African American who'd worked at the hotel for years.
At some point during the summer, I learned that the 'dollar an hour plus tips' really meant 'dollar an hour plus tips, minimum wage guaranteed'. The hotel management had been cheating me out of 1/2 of my eligible income.
Once the dust settled and the hotel agreed with the law, I let my friend know he could double his wages by filing tip slips at the end of the week; yeah, power to the people!
He then informed me that if his wages went up $40 a week, his subsidized housing rent would increase by $50.

The business screwed the employees, the government screwed people trying to get out of poverty, and nobody gave a rat's butt about the issue.

So yeah, the guy in the taxi probably deserves a bit of government love and the rich financial dude needs to pay more taxes.

FWIW, I'm a middle class white guy and I have written my congresscritters and asked that they raise my taxes to support things like universal healthcare.

Posted by: EscobarDriver | April 17, 2010 6:35 AM | Report abuse

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