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

Archive for the tag “tax the rich”

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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Why Should Some People Pay More Taxes than Others? (part 1)

Lately, I’ve been hearing, over and over, about how those with more wealth “can afford to pay their fair share.” It’s as if there could be no motivation except “doing what’s right.” Well, I think it goes beyond that. There are solid reasons for our graduated tax system, and solid reasons that the wealthy and corporations should pay more than a middle class wage-earner.

We rightly think of taking what you haven’t paid for from a store as stealing. We also say that, buying something cheap gets you an inferior product – “You get what you pay for.” These two elements add up to this imperative: Pay for what you get. What I’m talking about here are the goods and services that taxes pay for: public roads, police, fire protection, education, and many others. We all benefit from these, but those with more wealth, property, or who own a business get more of the benefits than do wage-earners.

Let’s take the example of a small, privately-owned company that manufactures a product. Let’s also assume that this is an old fashioned company whose work is still performed by human beings rather than robots.

If the company makes a profit, (tricky accounting notwithstanding) then it essentially makes a profit from each of the individual activities that go into its products – at least on average. What this means is that, by definition, the work of an employee who is paid $50,000 per year earns the company some amount more than $50,000 per year. Otherwise, there would be little point in employing that person. Let’s drill down and examine this employee more closely.

The employee lives in a residential community that is some distance from the company. So, the employee has to drive to work, as there is no convenient public transportation option for the trip. The trip is made in the employee’s private car, but on public roads and, as we know, roads cost money. The road that the employee takes to work is paid for by taxes and, ostensibly, provides benefits to those who pay the taxes.

So let’s look at who gets the benefits from the road. The employee’s benefit comes in the ability to get to a paying job. But the work that the employee does at the company also benefits the owner – in an amount that exceeds the employee’s pay. Thus, whatever benefit the employee derives from the ability to drive to work on the road, the owner also derives some benefit from the very same trip because it allows an employee to come to work and produce.

The road enables the employee to do the work that makes $50,000 per year, which makes a profit for the owner. The owner get his or her own benefit from driving on the road, plus a significant benefit from the road use of each employee. So shouldn’t the owner pay a larger portion of the cost to build and maintain the road?

I’ll continue this analysis in part 2.

-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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