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Taxing the rich sounds like a great idea, especially when you see how much wealth some individuals have—enough to buy small countries. Of course, the principle is sound: the wealthy should contribute more. But let’s dive into why this isn’t as simple as it might seem.

The Challenge of Taxing the Wealthy

Let’s say you wanted to tax the top 400 richest Americans, who together have more wealth than the poorest 50% of the country—about $3.2 trillion. On paper, it sounds like a gold mine. But in reality, taxing them at a high rate isn’t straightforward.

Most tax plans are a percentage of net worth each year. However, the average return on investments is about 7% annually, while inflation sits around 3%. If you tax more than 4% of their wealth, you risk decreasing their capital, which isn’t ideal if you want to boost government revenue without scaring off investors.

A top tax rate of 4% is manageable, but anything higher might push the super-rich to consider changing their citizenship. This can be postponed with laws that tax them if they renounce their citizenship, but it only delays the inevitable. In the long run, expect less investment at home and more abroad, shrinking your tax base.

Even with a 0.4% tax rate on $3.2 trillion, you’d only reduce the pre-pandemic 2019 deficit from $984 billion to $972 billion. A tax ten times that amount barely makes a dent. Even Bernie Sanders’ proposed 8% tax would only reduce the deficit to $728 billion in pre-pandemic terms. At 100%, you’d cover about two-thirds of the 2020 and 2021 budget deficits—but good luck without causing chaos.

A Different Approach to Taxing the Rich

Instead of focusing solely on wealth taxes, consider forcing wealthy individuals to share their wealth with employees. This means better wages, paid leave, health insurance, and other benefits. By increasing business taxes to cover these expenses, you end up with fewer obscenely rich people and happier, more productive workers.

Think of it as a nod to America in the 1950s—a time when the rich paid their fair share, and workers were better off. The richest often receive major income in dividends rather than wages, making it tricky to separate “labor” from “ownership” during taxation. This complexity results in lower taxes for the super-rich.

For instance, Mukesh Ambani earns ₹15 crore annually from Reliance, despite the company’s massive net income. His private jet, whether seen as a personal expense or business investment, adds to the difficulty of calculating his true tax burden.

Inherited wealth is also a puzzle. It grows faster than earned income and isn’t taxed until the wealth is sold. This means Ambani doesn’t need to raise his salary to enjoy luxury. The real value of inherited wealth often remains untaxed until liquidation.

The Problem with Tax Evasion and Capital Flight

Billionaires use complex structures like holding companies to manage their wealth, often avoiding property taxes and other levies. This means the current tax system, which focuses on income distribution, falls short on wealth accumulation.

There’s an old saying: “Name a tax and there’s a way to reduce it, delay it, or avoid it.” This sums up the reality of taxing the rich. While some economists aim to find taxes that raise revenue without stifling economic growth, it’s a tough balancing act.

The rich are well-prepared to handle taxes, with access to elite lawyers, accountants, and financial advisors. They often find ways to minimize their tax burdens, while average workers face taxes that are deducted at the source.

Finding Better Solutions

Approach	Description
Accelerate Tax Breaks	Offer incentives for investment during economic downturns.
Ensure Fair Wages	Guarantee minimum wages in all sectors.
Create a Positive Investment Climate	Reduce bureaucracy and encourage investment.
Support Priority Sectors	Offer tax breaks for investments in sectors with high economic impact, such as infrastructure or tourism.
Promote Public-Private Partnerships	Collaborate on social and physical projects for better outcomes.

As the saying goes, “You can’t make a poor man richer by making a rich man poor.” Instead, focus on creating a balanced system that encourages investment while ensuring fair contributions from all. Thanks for reading—here’s to finding smarter solutions that work for everyone!