Revenue taken from the top costs the rest of the economy least

The argument

A second argument is about where a given amount of revenue can be raised with the least damage. Proponents observe that a tax reduces whatever activity it falls on, and argue that the relevant question for any tax is what the money would otherwise have done. Taxing a modest income reduces spending on necessities and may push a household below what it needs to function; taxing a very large fortune reduces holdings that were not going to be spent at all, because consumption at that level has long since been satisfied and the surplus is held as assets. Proponents argue the mechanism runs through demand. Money in the hands of ordinary households circulates: it is spent, becomes someone else's income, and is spent again. Money accumulated at the top largely does not circulate in that way, and proponents argue that moving it into public spending or into the hands of lower earners therefore raises total activity rather than lowering it. On this account the claim that higher taxes at the top shrink the economy has the direction of the effect wrong. Proponents accept that collection is a genuine problem and argue that it is a different problem. Avoidance, mobility and valuation difficulties are reasons to design the tax carefully, to coordinate between jurisdictions and to close the routes out, and proponents argue that these are practical obstacles rather than objections of principle. The principle, on their account, is that if revenue must be raised, it should be raised where its absence will be least missed, and that is precisely at the top.

Premises

Counter-arguments

Opponents argue that the premise mistakes what accumulated wealth is doing. Fortunes are not idle cash; they are shares in companies, loans, property and ventures, which is to say they are already deployed as the capital that funds hiring, equipment and new firms. Taxing them does not move money from idleness into circulation but moves it from investment into consumption, lowering the stock of capital available to the economy. They add that the mobility problem the argument sets aside is the decisive one, since the base can simply leave while the ordinary taxpayer cannot.

Rejecting the premises

[Rejecting P1] What money would otherwise have done cannot be settled by the size of the holding, since large holdings are deployed as capital rather than held idle. [Rejecting P2] Very large fortunes consist of shares, loans, property and ventures already funding hiring and equipment, so taxing them reduces investment rather than unspent surplus. [Rejecting P3] Investment circulates as wages and orders just as consumption does, so the contrast the premise draws between circulating and accumulated money does not hold. [Rejecting C] The premises support raising revenue where it does least harm, and if the base is mobile and the holdings productive, the top may not be that place.