My Tax Philosophy

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When we discuss economics there are, very broadly, two types of people:

First, there are regular people. They mostly need to work, and a lot of them try to save enough so that they can retire someday. Some of them succeed, but increasingly, many do not. Being a regular person means spending most of your income. Some live very well, and some live very poorly.  Some work very hard, some choose not to, some do not have the physical ability to work very hard. Some had parents who sent them off into the world well prepared for success. Some did not.

Second, there are the extremely rich. The extremely rich do not need to work. Some love their work and have companies that they are very into. Others don’t. The extremely rich live off of the returns on their capital. That means that they, or their parents or grandparents, etc. have invested in something in the past. Being extremely rich means you can live well off of your savings, and still have more savings at the end of the year than you had at the beginning. That means some of your investment income is reinvested, not withdrawn and spent (meaning that every year you are even richer than you were the year before).  Being extremely rich means never needing to know how rich you are, and never having to think about it.

Our current tax code in the United States is heavily skewed to favor the extremely rich, with deductions, loopholes, and carve outs that all work in their favor. Some people think that this is how things should be, that the extremely rich should not have to pay very much in taxes because:

  • They are job creators.
  • It is not fair to punish the successful.
  • We should encourage those who save, not those who spend.
  • Anyone who works hard can be very rich, those who are not are lazy.
  • Rich people are just better people.

Noted economist Thomas Piketty taught us that the self-reinforcing accumulation of wealth is built into society.  As soon as someone is rich enough to live on less than their investment income, they will become more and more wealthy. The opposite of that is also often true. Poverty traps people: when someone can not afford to save because all of their income goes towards their basic living expenses or unexpected expenses such as medical bills, it is impossible to accumulate wealth.

Gross inequality — a society with a few rich people and lots of poor people is bad for the poor, but it is also bad for the rich.  Unfortunately, Congress has started working on plans to greatly exacerbate that trend.  Business people want to invest and build businesses in high income places, not low income places.  

American business people and American investors depend on a society with the hundreds of millions of people who can afford to buy stuff, whether it is computers or candy. A small number of rich people alone is not enough to help society as a whole to do better.

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