Billionaire Tax?

 

Billionaire

Oh every time I close my eyes
I see my name in shining lights
A different city every night oh
I swear the world better prepare
For when I'm a billionaire
Oh ooh oh ooh for when I'm a billionaire
Oh ooh oh ooh for when I'm a billionaire

But should there even be billionaires?

When I was growing up, the aspiration was to be a millionaire. Inflation has contributed to a change, but Reaganomics also created more billionaires when those in the highest tax bracket unintentionally could retain more of their income. Just as not understanding the difference between a mean and a median can lead to economic disasters, https://dbeagan.blogspot.com/2018/08/wonderful-world-dont-know-much-about.html, not understanding the difference between an effective tax and a marginal tax has led to those in the highest tax bracket retaining more of their income. This error over time has led to millionaires becoming billionaires.  An effective tax rate is a first derivative. A marginal tax rate is a second derivative. Confusing the two, is like confusing speed and acceleration. They are NOT the same. Acting as if they are the same is the basis for the Reagan’s income tax codes. The tax rate in any bracket is the marginal tax rate, not the effective tax rate. When the effective rate varies from 0 to 40%,  the  marginal tax rate should vary between 0 and 100%. This is not being punitive at high brackets. It is merely how math works. A 100% bracket does NOT mean that the tax rate is 100%. It merely means that in that tax bracket the full highest effective rate applies.

The income tax brackets are supposed to be merely a convenient means to compute the effective tax. Otherwise a formula would be required. The tax brackets allow that formula to be approximated by straight lines and the use of simple multiplication. Beause of the error, those in the highest brackets are retaining more of their income than was intended by the effective rates. If that income has been retained each year, and it has been over 40 years, and this retained income has been also been compounded, is it any wonder that millionaires have become billionaires.

Should Congress create a tax on billionaires? Congress created those billionaires in the first place by enacting those erroneous tax codes, so Congress should certainly tax them. But at the same time, Congress should fix the income tax code so that millionaires don’t unintentionally become billionaires in the first place.