On Taxing The Rich

The last few weeks have been very interesting. The Canadian election is underway and the American democratic primaries are underway. The idea of universal basic income has been thrown around by Andrew Yang and Single Payer Healthcare is on the tip of every democrat’s tongue. (Disclaimer: I’m very pro universal healthcare and making sure every person has enough to live a fulfilled life.)

Every time this comes up a dialogue that sounds kind of like this ensues.

Person 1: “That all sounds great, but how are you going to pay for it?”
Person 2: “Well, that’s easy, we’ll tax rich people. Did you know Jeff Bezos has a net worth of over 100 billion dollars?”

Maybe that works, I don’t know. What am I, an economist? But here’s a concern.

The thing about the “ultra-rich” is that most of their money doesn’t ever make it’s way into the economy. Jeff Bezos may be worth 120 billion, but in terms of purchasing behavior it’s doubtful Jeff Bezos ever spends more than a million dollars or so in a year. So that means maybe 119.9 billion dollars of his net worth is effectively not part of the economy. It’s not being spent on iPhones, it’s not getting spent on kumquats, it’s not getting spent on cars, rent or lunches. Say we somehow managed to tax that wealth and put that money back into the economy, there wouldn’t be more kumquats, iPhones, cars or rental units. Presumably everyone in America is already doing something that created economic value, and they’re not just going to be able to do more because more dollars are floating around.

So, somehow taxing half of Jeff Bezos’ net worth and then re-injecting it into the economy would be a net cash injection into the economy. Is that any different than just making money?

So what are we to do? In America we live in the richest country at the richest point in human history. Step 1 is agreeing that everyone deserves to not live in fear of losing their job and being out on the street. People seem to paint this as a rejection of free market capitalism. But I think it should be clear that communism and a social safety net are not actually the same thing. If the american government decided to print enough money to give the poorest 5% of the population in the United States $1,000 per month that would work out to $192 billion dollars per year. There is over 10 trillion dollars in cash and money in the United States (M2 monetary supply), so the total monetary supply would be boosted by about 2% per year. These people aren’t buying luxury goods most of this would go towards basics, and be re-injected into the economy. It would be a very minor tax that no one would actually notice since it doesn’t come out of their bank accounts.

I should reiterate, I’m not an economist. Just my 3 cents.

Published 20 Oct 2019

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