If you understand investments, you may understand why billionaires are concerned about being taxed. On paper it makes sense. Sort of. Actually there are two reasons we should tax billionaires.
But first, let’s explain why they are reluctant to be taxed.
Why Billionaires Don’t Like Taxes
Look, it’s easy to jump on the “they’re rich; get the pitchforks” bandwagon. We see people with tons of money and we want them to pay their fair share, no matter what.
But do we want to treat them without empathy just because they’re rich, or do we want to be fair? Let’s assume we want to follow the golden rule and treat everyone as we’d like to be treated. That means we have to understand the problem.
Billionaires are billionaires on paper. In other words, they don’t have a big pile of billions of dollar bills sitting in a vault like Scrooge McDuck. They own things that have value: property, art, stocks, etc. Often these people don’t have “income”.
This means that in order to pay taxes on their wealth, they have to sell something. This means getting rid of something valuable to them or decreasing their shares in a company.
This kind of sucks. After all, no one else has to pay taxes on the increase in stock value, just on dividends and profits from selling. That doesn’t seem fair, right? Well, if we’re going to talk fairness, then let’s talk about two reasons we should tax billionaires.
Disposable income is the amount of money you have that you don’t need. It’s fluff. You have what you need to pay bills, get from a to b, eat, live, etc., and the stuff that you can use for whatever you want and to be whoever you want.
For most people, disposable income accounts for a very small portion of their income. For some, it may even be non-existent. For billionaires, their wealth is almost all disposable. In fact, billionaires basically have more money than they could ever spend except to invest more.
In other words, the people that have the least don’t have the option of avoiding taxes, because they have no disposable income to invest. Billionaires, on the other hand, need such a minute amount of their wealth they can pretty much invest it all and get richer and richer without paying taxes. Maybe that’s why 10% of Americans own about 90% of US stocks.
Talk about unfair. The poor have to foot the bill for taxes because the rich have more money than they will ever need, which brings us to the second of two reasons we should tax billionaires.
Sunk Cost Analysis Explained
One trick that financial analysts use to determine whether or not they should sell something is what’s called a sunk cost analysis.
See, we human beings don’t like to lose. If we put money into something, say a stock, we want to make money on it. It makes us happy. If that stock drops to half its value, we want to keep it, hoping it will go back up so we don’t lose our investment.
To take emotion out of the equation, analysts use a sunk cost analysis. It’s simple. Just ask yourself, “would I purchase this item at this price today.” If the answer is no, you should probably sell. If the answer is yes, you should keep it.
The Billionaire’s Question
Here’s the thing: billionaires relied on tons of public support for their success. They typically rely on government subsidies and tax breaks to build their companies up. They rely on a workforce that has been fully educated by 12 years of public school and public grants, scholarships, funding and more for advanced education. Sometimes they rely on the government helping out their workforce because they don’t pay enough.
They rely on roads and other infrastructure. They rely on regulation and government oversight. They rely on a legal system, international trade, copyrights, trademarks, and other government provided protections that benefit their interests. They also rely on all the people in local shops, restaurants, construction, transportation, services, and more that have been educated, trained, and sometimes hired by the government.
In short, there is a breadth of benefits from which the billionaire has benefited from we the people, to the tune of billions and billions if not trillions of dollars. So here’s the question each billionaire should ask: if I could buy more stock at this price instead of using that money to pay my fair share into a system that has benefited me greatly so that other people don’t have to foot the bill, would I do it?
That’s the sunk cost analysis right there. If the answer to that question is “yes”, then no rational person would argue that would be greed. It’s only when we look at it the other way: selling the stock to pay our responsibility that seems harsh. We must use the sunk cost analysis to see this for what it really is: a requirement of those who benefit from the system to find a way to pay their fair share back into it.
These are the two reasons we should tax billionaires: because their extreme amount of disposable income gives them an extreme advantage that isn’t available to the majority of people and because, if the situation were reversed, we know the right thing to do would be to give the money. It’s simply fair for everyone.