Left Coast Voices

"I would hurl words into the darkness and wait for an echo. If an echo sounded, no matter how faintly, I would send other words to tell, to march, to fight." Richard Wright, American Hunger

Would taxing the (super) rich a little more be fair?

Economists always talk about “margins” or “marginal this” and “marginal that.” What does this really mean and how does this concept apply to real life?

It’s like this: Imagine you’re ten years old and your mom brings you late for dinner on Tuesdays, after your little league practice. Your mean older brother has already eaten two of the pork chops (or vegetarian schnitzel, if you prefer) that your dad grilled on the barbeque and there’s only one left. Your brother wants it, but your parents intervene and give it to you. Was this a good decision?

It should be pretty obvious that it was. But why, exactly? In technical terms, the decision was a good one because you would get more “marginal utility” from your first pork chop than would your brother from his third.

What might be an even simpler food-based analogy is the good-old pizza story. How much satisfaction do you get from your second piece of pizza (after you’ve only eaten one)? Compare that to the satisfaction you get from your eleventh slice (after you’ve already eaten ten). Can you see the difference?

Getting back to economics, how much would the lifestyle of a multi-millionaire improve if he or she all of a sudden received an extra thousand dollars? How much would your lifestyle improve with an extra thousand? I’ll bet there’s a difference. That’s because the marginal utility of a thousand dollars is much higher for the average person than it is for a wealthy person. I think this example could be taken much further. I’m going to say that the marginal utility of $1,000 to the average American adult is much higher than the marginal utility of $100,000 to a multi-millionaire.

OK, are you ready for some fun? Let’s do some math! Let’s forget about millionaires. Most whine that they don’t “feel” rich anyway. Forbes Magazine says that there are 403 BILLIONAIRES (yes, with a B) in America, with a combined net worth of 1.3 Trillion dollars. That divides up to an average of 3.2 billion each. Do you think you could somehow get by on $100,000 per year? These people could “survive” at that level for 32,258 years on average without ever making any more money (not accounting for inflation which is predicted to be pretty bad starting in the year 8011).

My question is simple: What is the marginal utility of the third billion dollars out of $3.2 billion? How much does a person’s life improve if he or she has $3.2 billion versus a mere $2.2 billion? Does it enable a person to buy a third private jet, or a sixth summer mansion? What if that money were used to employ people to repair our nations aging and rotting infrastructure? That would mean over 8 MILLION jobs that would pay $50,000 for one year, or 800,000 jobs at $50,000 for ten years.

Now of course these figures are exaggerated somewhat. Some of that money would have to be spent on equipment, materials, etc. But I think the point makes itself. But here’s the kicker (and it’s a big one)… The billionaires would BENEFIT MORE from this scenario than they presently do by keeping that extra billion dollars. Why? Well, besides having better roads, water supply pipelines, sewage handling and treatment, and many other elements of the quality of life, there would be millions more people with the means to buy their products and services. In fact, the billionaires could probably recoup their “investment” (more or less) in just a few years in dollar terms, but the benefit to their country would outweigh that many times over.

So, I ask again: Would taxing the rich be “fair”?

-Tom Rossi

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Tom Rossi is a commentator on politics and social issues. He is a Ph.D. student in International Sustainable Development, concentrating in natural resource and economic policy. Tom greatly enjoys a hearty debate, especially over a hearty pint of Guinness.

Tom also posts on thrustblog.blogspot.com

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4 thoughts on “Would taxing the (super) rich a little more be fair?

  1. Great article, Tom. I wish I knew a couple of billionaires to bounce this off of! Particularly liked the point that by offering the masses more disposable income, the billionaires would benefit from more sales, profits etc.

    Only point I’m not sure about is that 11th slice of pizza. Hmmm. Which pizza company?
    Alon

    • I suppose the point is best made if it’s Dominoes. If it was Lombardi’s in New York City you might actually want to eat that 11th slice.

  2. Nice thumbnail description of one aspect of the matter. Another might be how much easier it is for a rich person to make that extra $1,000 than for a poor person. But what does any of this have to do with “fair”? Is that word even used in economics?

    • Sorry, I just discovered this comment. I guess I’m a little slow. You bring up a great point. For whatever reason (a looooong subject in itself), fair is a word that mainstream economists avoid. Yet they constantly use the word, or at least the concept, of “should.” They always tell us how things “should” be, and they use justifications like malevolently-named, “dead weight losses” to justify this. Mainstream economists, those who have become dominant in a system under the control of those who reap the benefits of that system, always want to bend us further and further toward a true “free market” system.

      The problem with this is that the mythical free market is, in actuality,basically the “law of the jungle.” It’s the strong devour the weak. In fact, if we could somehow start anew with a free market, it would soon eat itself and the market would only remain free for about a millisecond.

      In my crazy opinion, the purpose of a society is to prevent the law of the jungle. We choose, as a group of whatever size, acceptable and unacceptable behaviors and set up rules to guide people toward the acceptable ones.

      If you were to argue that we could approach a dangerous line with this process, you would be absolutely right. Governance is a balancing act and I stand in opposition to extremes such as a true “free market.”

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