One summer the G8 leaders summit came to our community near the ocean. Maybe because it was held at the high point in the wars in Iraq, but the military came with them. Quickly, they surrounded the resort area with security fencing. We lived several miles away, but a small military unit arrived and set up not far from our house with what looked like a radar station. There was talk around town that missiles were somewhere in the area.
Most of the people who could leave, did so, renting out their houses to some foreign government.
I’d guess this is the kind of show that’s put on annually in Davos, Switzerland, held last week. Called the World Economic Forum, it attracts more than one thousand private jets and planes, and the sorts of people who fly around in them. The meetings have important subjects to discuss, or at least that’s what they put in their media packets, but mostly it just seems like a place for the rich and the powerful to see and be seen.
This year there were a few protestors whose signs carried the message, “TaxtheSuperRich.” Certainly, if holding a sign actually resulted in an increase in taxes on the wealthy, it would be more in-fashion. What Davos did seem to attract was billionaires, and the observation that the number of individuals surpassing that wealth threshold continues to increase every year.
With governments all over the world suffering from budget deficits, or anemic economic growth, or both, the Davos attendees did seem to have taxes on their minds. The total wealth of the ten richest people in the world is just a tad less than $2 trillion dollars. While that’s an astounding amount, the United States budget deficit in 2023 was $1.7 trillion. Which means very simply, that if you took every bit of wealth as tax from the richest ten people, you’d only close the gap budget gap for a year (the ten aren’t all Americans, either). This simple math tends shut down these discussions before the start. The rich throw up their hands and shrug. It’s all unrealized gains anyway, right?
This is unfortunate, because nothing about taxes is simple. In fact, tax codes are some of the most complicated things we’ve made. And they aren’t really codes at all, but labyrinthine systems of laws, at the national, state, and local levels. Many of these are specifically designed to motivate certain behaviors–for example, giving a tax break to a business to get it to set up in your community to start hiring and issuing paychecks to your neighbors. Less tax for the city, but more money in the pocket of families in your town.
There’s often talk about simplifying the tax code, which sounds good to a large number of people. Sort of like believing that cleaning out your garage or basement is somehow going to simplify your life. Instead, you just clear out a space that fills back up over time.
What’s lost in the tax discussion is that tax money paid into the government comes back out in the form of contracts and payroll. A lot like it does in private business. Then it goes back in, then it comes back out. The term for this is cash flow, and it’s what powers our economy.
Does it sound like I’m arguing that we should tax the rich more, or someone else, or everyone else? I don’t love tax increases, honestly. Part of that is because we don’t really use taxes wisely enough. Or to put it another way, it’s possible that the reason wealth scales up unevenly is that our existing taxes don’t really achieve the goals we’re seeking. Maybe we’re taxing things the wrong way.
This is perhaps best seen in the tax cuts passed in 2017 in the US. The next year, there was a record $800 billion of stock buybacks by corporations. The law was actually called the Tax Cuts and Jobs Act. If corporations had instead spend $800 billion on new investments–products, processes or factories– that money would have resulted in a lot of jobs. Or if they’d spent it on shoring up weak pension plans, or paid down debt, or even as a last resort, purchased overseas factories, some money would have eventually flowed back into the economy. But buying stock in a single corporation is a big no-no as an investment strategy. They teach you not to do this in biz school. It’s simply too risky. It’s so risky that it was only legalized in 1982. If your stock slides, you can get wiped out.
But this is exactly what companies did in 2018. There was a short-term stock price increase, and a mild investor benefit. That’s all. And that could easily be washed away in the next earnings report. Where were the jobs? Why there wasn’t more guidance in the act to drive those tax cuts into the paychecks of the American worker–into the local economy for millions of people?
Perhaps we should just be smarter with how we tax in the first place. It is possible, if we have the will to do it.
