Trickle down, wealth tax, and war

The central advantage to a wealth tax is that it spreads the power to spend wealth throughout the society and thereby can better the society if done in an appropriate way.


There was a time, not so long ago (which Ronald Reagan was President) that some economists believed in the “trickle down” theory.  This was the notion that if the government were to reduce taxes on the wealthy, the wealthy would use the money to increase economic production and thereby help those in need.  Unfortunately, this doesn’t work.  If you want the needy to spend money, you give them control over money.  The wealthy, on the other hand, will but the money into savings or purchase goods (like antiques) that don’t really increase the economy.  We saw this recently when President Trump cut taxes for the wealthy.  Much of the money was used to buy back stocks previously issued on the open market and nothing really helped those in need.

The Wealth Tax is an idea that is being advanced by both Elizabeth Warren and Bernie Sanders.  It is a direct tax on the wealthy, to be used for a variety of purposes.  What it does is skim off excess, unused wealth from the wealthy and put it to use funding objectives which both improve the lives of others and save them money.  Since it saves them money, they should be able to spend it on other things, and that will help the general economy.

Expenditures on war (war equipment and military personnel) has historically boosted the economy.  The government raises general taxes and then spends the money on the military.  Those who receive the money spend it on other things, and this boosts the economy.  Of course, the government could boost the economy by spending the money on farm equipment or low income housing.  The problem with spending the money on war equipment is that it makes the military want to go to war.

But you get the idea: government expenditures pumps money into the economy and boosts it.  The government has to get the money by taxing someone or a group of someones.  Or else it creates money by printing it.  Given the inequality of wealth presently, the best thing to do is just tax the wealthy and pump the funds back into the hands of the non-wealthy, as they will spend it.

Both Bernie Sanders and Elizabeth Warren understand what needs to be done.  Sanders has proposed to eliminate student debt ($1.6 trillion) by placing a tax on Wall Street transactions.  Warren proposes to do the same with a tax on the wealthy.  Although a tax on Wall Street transactions is something like a tax on the wealthy (since the wealthier people are the ones who do such transactions), there are plenty of  retired people who use Wall Street to try to maintain their retirement money, and taxing them will hurt their futures.  A pure “wealth tax” (what Warren has suggested) eliminates this problem.  And even the wealthy have proposed a wealth tax to help combat climate change

There are plenty of difficulties with property valuation to the imposition of a wealth tax.  See, e.g.,  However, the proposals for  a wealth  tax are only on the very wealthy, which limits the need for calculation to a very small group.

“One of the problems with wealth concentration is that it encourages productive capital and property to go unused. When a taxpayer has millions of dollars, much of that money is likely to sit unspent in a bank account or an underdeveloped property.

“Wealth taxes encourage people to spend and use their capital. If money that sits in a bank account or third home will get slowly eroded by taxes, then the taxpayer’s incentive is to spend and invest that money instead of letting the government seize it.

“Rather than having stagnant pools of useless capital, a wealth tax gets money moving, either by encouraging private investment or by letting the government spend it

Read this article to have a better sense of wealth taxes

This is not to say that there are no difficulties in imposing wealth taxes, because there are.  But the alternatives have their own problems.  The central advantage to a wealth tax is that it spreads the power to spend wealth throughout the society and thereby can better the society if done in an appropriate way.  This is why the wealthy have proposed a wealth tax to combat climate change.


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