Taxes fund Social Security, fire departments, education, transit, public health, clean water, sewer systems, parks — the list goes on and on. Without taxes, we would have none of these services, which are held in common for all of us.
Taxes work even better when they redistribute income and wealth from the most privileged to pay for public services. In our state, however, we do the opposite. Low-income families spend three times more in taxes as a percentage of their income when compared to the top 20 percent of income earners.
This is redistribution from the poor to the affluent. It becomes more lopsided because the wealthy benefit disproportionately from a civil society and legal system that enables them to enhance their own privilege in terms of property, income and wealth. They are also more likely to benefit from public support of higher education at the University of Washington, the maintenance of roads for their several cars per family or the ferry system to get to their second homes. That list goes on and on, too.
But, John, you might ask: Don’t taxes come from people, and isn’t that a bad thing? The answer to the first question is “yes,” and the answer to the second question is “no.” It is an even stronger and more affirmative “no” when taxes come from the affluent.
Let’s start with the neoclassical economic understanding of “marginal utility.” Marginal utility simply measures the value of something in a generic unit called an “util.” Utils can be equated to dollars, emotional satisfaction, comfort, pleasure, gain or any other objective and subjective value.
Establishing the marginal utility of money is pretty straightforward. One dollar for someone who has $100 means a lot more than $1 for someone who has $100,000.
Dr. Oz sure seems to think so.
“Once you get about $40,000 of income, the value of money dramatically decreases in your life,” he said, channeling his inner Lucille Bluth.
Taxation of income — when aimed at the affluent — subtracts a lot less marginal utility from the affluent than similar taxation does from middle-class people, and it adds a lot more marginal utility for low-income and middle-class residents through the provision of public services, such as K-12 education.
Not taxing the wealthy diminishes marginal utility derived from public services far more than it increases marginal utility for the wealthy. The result is a net-negative marginal utility for the entire state.
Outsized affluence is an economic “bad.” We tax cigarettes and alcohol because we see these products as negative things rather than positive things in an economic sense, especially taking into account the negative externalities produced by their consumption such as lung cancer, cirrhosis, drunk driving or high blood pressure. Taxing these things provides an economic disincentive for their consumption, and that is a good thing.
Similarly, we can consider high incomes and wealth as economic “bads.” They encourage the disaffiliation of the wealthy from the wellbeing of society. They grant choices to the wealthy that undermine the foundations of public goods. Let’s consider the ramifications of private K-12 education for the wealthy. When household income exceeds $250,000 for example, it becomes easier to pay private school tuition. You could let yourself become afraid for your child in public school, or you could simply admit to yourself that you want your child to be associating with other affluent kids and not a bunch of students with differing incomes, races and ethnicities. You could insulate your child from public schoolmates, you could instill in your child a sense of privilege and superiority, you could further enable the intergenerational pathway of privilege for your own child. You could double down on economic and racial segregation.
These are the negative externalities, the economic “bads,” that affluence generates. It is bad for the rest of society for the wealthy to isolate themselves from non-affluent members of society and distance themselves from the democratic aspirations of community.
Diminished personal marginal utility, negative societal marginal utility, the proliferation of negative externalities and the regeneration of economic “bads”: These are the products of the polarization of wealth and income to the already affluent. Taxes on the affluent are the antidote to this undermining of our commonwealth.
Let’s consider Jeff Bezos. His wealth is now valued at $165 billion. Let’s say the legislature passes a wealth tax of 1 percent. The state would gain $1.6 billion annually for early childhood education, K-12 and higher education, while Jeff would have only $163.4 billion to invest in rockets to outer space. Is the education of a child — or 150,000 children — less valuable than a private rocket launch?
When someone’s wealth exceeds $1 billion, or even $100 million, we should be taxing it and putting those taxes to use for society. A hundred million dollars is plenty to live in overwhelming comfort, far apart from the realities of life for all the rest of us. Taxing 1 percent of this wealth is a very small step toward gaining the public funds for rebuilding our commonly shared wellbeing.
Read more of the Aug. 24-30, 2022 issue.