Playing Robin Hood Politics

Q: Do you support increased taxes on billionaires and multi-millionaires? Why or why not?

A:  Maybe, some, but VERY reluctantly ....

Raising taxes on billionaires and multi-millionaires is being proposed by Democrats (and particularly the Democrat Presidential candidates and the " progressives") for the following reasons:

1. They perceive more taxes need to be collected to reduce the federal budget deficits or to enable more spending and wish to avoid losing votes by raising middle class voters' taxes, as there are far fewer votes to lose with fewer billionaires and multi-millionaires.
2. It is politically expedient to play the "class card" in politics. "Don't tax me, don't tax thee. Tax the man behind the tree." is an old political statement.

3. The wealth gap between the "rich" and the "poor" has grown in recent years. The tragedy of the Great Recession caused by the mid-to late first decade of this century is that many people, particularly the poorer people, had most of their net worth tied up in the equity of their homes. With the crash of home values, most or all of their equity was wiped out. As housing prices and the stock markets recovered, people who were able to retain their homes and other equity investments have made out very well, including yours truly. But those without any equity remaining got left out, and fell behind.

4. The concentration of wealth is transformed into power and influence in politics. Many people now believe that the elected officials are more answerable to the sources of campaign donations than to the general public, i.e. "the man in the street". Making the billionaires and multi-millionaires pay more taxes and/or making them poorer might lessen their influence.

5. Envy for what others have is a strong motivator.

There are serious problems with this, however.

1. This source of additional revenue is being proposed to pay for a whole range of proposed new federal expenditures. However, even if done, the money can only be spent once.
2. For the government to give to someone, it must first take from someone else. At what point does taking from someone just to give to another transform from "taxation" to "theft"?
3. Taking the fruits of some peoples' labor through taxation strikes some as a violation of the Constitution's prohibition of "taking another's property without due process". The Constitutional prohibition has been so eroded over the years that The Supreme Court will find acceptable that the Congress could have (but need not have actually done so) thought there was a reasonable connection between the means described in the legislation to a general public good.  In other words, there need not be any restrictions left, and that is a real tragedy.
4. Taking from the producers in society to give to others reduces the incentives for production, and if less production occurs, we are less well off, less prosperous, as a society. At what income tax rate this phenomenon occurs is uncertain. In general, economists do not like income taxes as they discourage savings and investment, the engines of economic growth..
5. I abhor the concept of "raising people up" by pulling other people down. I prefer raising the general level of prosperity by enabling people to have jobs and earn their livings, and to encourage people to be more accountable for their results, with incentives to learn, to grow, and to be able to provide more service to others, and thus worth more in the labor marketplace.

6. If the "taking" is by a "wealth tax" instead of an income tax, then we run into the challenge of how we appraise the value of one's assets at year end. Many assets are not liquid assets without readily determined market values. If only assets with readily determined market values are subject to a wealth tax, there will be a migration to other types of assets, skewing the allocation of resources. If all assets are included, then a massive new job source is created, called the "Appraisers Full Employment Act".

As described in my blog post "Free Market Economics: Problems and Solutions", one of the expected results of capitalism or unfettered free markets is growing inequality. From time to time in capitalist societies, a reaction occurs, such as the trust busting during Teddy Roosevelt's time. Are we reaching such a point again in this country? The only reason I might be willing to raise the highest tax rate would be to let a bit of steam off, to ward off even more drastic measures.

Conclusions: I might reluctantly support a minor increase in the highest income tax rates, but not very much, depending on what positive trade offs might be accomplished through negotiation in Congress. 

I would, however, much prefer reductions in the tax breaks, indirect subsidies, and "tax expenditures" that special interest groups have gotten into the income tax law over time. 

If additional revenue is needed to lessen the massive federal budget deficits (see "The Looming National Debt Crisis - What are the Tradeoffs?"), I would much prefer consumption taxes, such as the Fair Tax or the Value Added Tax which do not discourage savings and investment.