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Let’s make this short and sweet, but I think it is probably my most impassioned policy preference among the many that I hold. I, too, support raising taxes on “the rich.”

I’ll repeat it, I support raising taxes on the rich. And I support that tax at much lower levels of richness than even the President and his supporters.

Of course the devil is in the details. Since we wish to tax rich people for their profligate consumption, and for promoting consumption that causes inequality, and for taking advantage of “loopholes” that are granted in the various tax codes, I think there is an obvious and fair way to raise taxes on the rich – and an efficient one at that.

Republicans should get behind this tax because it doesn’t have much of an impact on job creation or new business creation – it has very low “dead weight losses.”

Democrats should get behind the tax because … well, it’s a tax. And it’s on rich people.

Libertarians should get behind the tax because it corrects a government created distortion in the free-market (perhaps like the ObamaCare mandate itself).

And what is this tax?

Means-test government schooling. In other words, government schooling should be provided freely to the poor, and then it should be paid for in increasingly large amounts by people with an increasing ability to pay. What was that about “from each according to his ability to each according to his needs?” The government school unions should rally behind my proposal. Think about the billions of dollars such a tax would raise! Think about how much fairer the distribution of schooling across neighborhoods would be. In any case, this is exactly how government run higher education works. And don’t tell me “but the rich already pay for schools through property taxes.” They don’t. For two reasons. That tax is collected regardless of whether they go to the school or not.  And their house prices are lower because the taxes exist. Furthermore the same can be said of anything else the rich do. The rich are already paying income and estate and sales taxes which are used to fund higher education, isn’t it unfair to ask them to pay more on top of that? The rich already subsidize the post-office. Isn’t it unfair to ask them to pay more for stamps?

So if you are rich, and you want to send your kids to, say, Pittsford-Sutherland High School, you should be paying a tax up to and including the gross cost of sending a child there. So a typical Pittsford family should be paying up to $18,000 per year to attend Sutherland. It is a world class high school, shouldn’t they be charged for it more than the lower income Pittsford family? And think of what we can do with all of the proceeds. We can take half of it to increase spending on urban, poorer school districts who have to suffer on only $25,000 per student right now. We can use it to develop better special education programs. We can expand public health clinics in all of our communities. We can pay off some debt. We can pay the teachers even more than they get now, and give both them and their descendents free health care and retirement benefits for life. After all, they are the struggling 99% and you, the rich family in Pittsford, are the 1%.

Tell me on what grounds you can possibly oppose such a tax if indeed you think it is only fair and just to increase taxes on the rich. We all know that taxing labor and capital income is inefficient and subject to all kinds of income shifting, corporate reclassification and unintended consequences. With this tax, you cause far fewer distortions, identify the rich much more effectively than if you tax income or capital, and there are some very, very, very attractive features of such a tax.

For you fools who like to run around supporting the concept of school vouchers (I was once such a fool) you now have a way to take the anti-voucher argument right back to the people making it. An anti-voucher argument usually screams at the injustice of making public schools compete – only to lose revenues when they lose the competition. The government teachers and admins HATE vouchers. They also hate private schools in principle simply because they cannot (directly) control them. The thought that different educational methods might be tried, or that non-standard subjects might be covered, or that God might be discussed, or that ethics and morals are taught, or that maybe freedom is a little more respected in some other schools is just so unbearable that they have to say that vouchers are unjust because the defund the critical needs of the schools who are already struggling under the crippling ideology of the anti-tax TeaBaggers who actually have no influence but make for a nice boogeyman.

By means-testing government schooling you stop that argument dead in its tracks. You see, the government schools get the rich people’s property taxes regardless of where the rich people decide to send their kids to school. The school loses no funding at all if a poor person finds a way to make it to a private school, even under some voucherized scheme. But what we’ve just done is leveled the playing field just a little bit for entrepreneurial private schools to emerge and existing private schools to flourish. My school charges only $6,000 or so per year in the early grades, and it manages to educate our kids for around $7,000. I have to pay that tuition with after-tax dollars. Rich people in my neighborhood take my tax dollars and send their rich kids to luxurious schools for free, spending $18,000 per student. So I am giving up something on the order of $17,000 each year that I send each of my kids to Catholic schools. I am not asking to take any money from my neighbors. Take all of that proceeds and dump it in the Pacific Ocean for all I care. Or use it to reimburse the poor after we slap a carbon tax on them. I don’t care. But what this tax will do is make the marginal cost of attending a private alternative lower – perhaps zero.

Let’s see what happens over the course of a few decades after such a proposal is implemented. Show me any reasonable argument against such a tax? And show me any person who actually would come out in support of it.

So while I can and should write much more on this, there you have it. Here is a big tax on the upper-middle class and on the rich that I support. And I would go down swinging if I had to by staking my election prospects on this single issue. Would the teachers unions’ support it? Of course not, and that should tell you everything you need to know about their motivations.

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6 Responses to “Raising Taxes on the Rich: A Proposal that Democrats, Republicans and Libertarians Should Support”

  1. Maverick says:

    WC,
    I think your argument for means test government schooling is sound. Certainly we are already doing this at the higher education level (both public and private in my opinion). I have one question about your proposal. Would existing property taxes (the school tax portion) be eliminated? It would seem to me that they could and should be.
    Maverick

  2. jb says:

    “this tax will do is make the marginal cost of attending a private alternative lower – perhaps zero.”

    I am obtuse, I guess, I don’t know if I understand. Let’s take a simple example and look at the alternatives one might face. Take the case of someone earning $250,000 per year, household income. Not mega-rich, but not badly off by any means, by local standards. Under the current system, he can send his kid to public school at $0 marginal cost. Or he can send the kid to XYZ academy at perhaps $7,000 per year. XYZ is qualitatively better in his view by maybe not $7,000 worth…so he has to face that trade-off and choose.

    So…how would a means-testing strucure change the calculus for him, so that the marginal cost of the private school is not as prohibitive? I am (figuratively) thinking out loud as I write. OK so now if he wants to attend the local public school his choice is to pay the $18,000 per year (assuming I lose the subsidy completely, and that they charge me the full average cost of $18,000 per student you cite, not necessarily the marginal cost) versus th $7,000 I would have to fork over to XYZ academy.

    Yup, consider the calculus changed.
    Do I have that right WC?

  3. Speedmaster says:

    Hmmm. Definitely thought-provoking.

  4. Harry says:

    1. I am not sure I buy your real estate tax theory about how it is a hidden boon in disguise by lowering the price of my house. It reminds me of our accountant telling me he could lower our tax liability by doubling his fee, my brother explaining the benefits of business losses.

    Cheaper asset prices caused by diminished earning power are good for those who have cash in hand. Moreover, fluctuations in the value of one’s house, or a big pile of securities (fully owned, mortgaged, or margined) are important only when one decides to sell, which normally occurs when one has found a better NET situation after taxes paid.

    Contrary to Geithner, Rubin, and Jared Bernstein’s economic history, the Clinton magical income tax rate did not cause whatever prosperity we enjoyed in the ’90’s, although I will concede there is some legitimate debate about whether 39.8 percent is the perfect apex of the Laffer Curve.

    Bill Clinton luckily inherited a recovery in 1993, and promptly shocked everybody by attempting to impose socialized medicine. Yes, companies like Caterpillar did well on the stock market, but my memory is that it was a good time for selling covered calls. Meanwhile, interest rates peaked just before the 1994 election, which ushered in Newt Gingrich and John Boehner.

    To give Clinton credit, he abandoned socialized medicine in favor of welfare reform and lower capital tax rates, which fueled economic growth and entrepreneurial animal spirits, which led to some excesses, like Corning selling for three hundred times profits, and Maria Cantwell selling Real Player to buy her senate seat next to John Corzine. But Clinton did some good.

    Fans of Value Line or any service that publishes those gray lines know that Clinton handed George W. Bush a recession by 2001, and by 2003 income taxes were lowered for everybody, including dramatic reductions in capital gains. One of the results was an incentive to liquidate real estate with a low cost basis, which under a wiser regime should have been adjusted for forty years of inflation. It was a good time to go long on cash if the price was right for your land, especially since both the Bush administration, congress, and FNMA were happy to fund an ocean of buyers.

    For this reason, I disagree with both Tim Geithner and the president that the cause of our impending economic apocalypse, which WC has often warned us of, is that we lowered the top marginal rate by four percentage points, nor is its restoration to Clinton/Rubin levels solve anything. Hell, they want more stimulus spending, more hair of the dog to cure the hangover.

    2. I, too, was a bit confused about WC’s intriguing proposal. Was he suggesting that there be a link between at least the more prosperous parents and the cost of educating their children and not passing this cost off to other people? I think that would be a great idea.

  5. […] are some older thoughts on mine on taxing the rich more. And […]

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