The politically correct world of income equality has emerged in California in the form of the Albert Pujols tax. Ostensively, it is call the Kim Kardashian tax. The group is adopting the tired mantra that millionaires such as Kardashian are “not paying their fair share” and should be taxed more. The group calling itself the “Courage Campaign” wants those with incomes of $1-2 million to pay 3 percent more and 5 percent more if they make over $2 million. The bold – and wrong – claim is that this will raise state tax receipts by $6 billion a year. Of course this assumes that no one moves or shelters income. Of course if Kardashian threatened to move to Nevada, that state would probably enact a Kardashian specific tax to keep her out. That Ms Kardashian has been targeted is because despite her popularity (or notoriety) apparently she is also intensely disliked. If she has political views, they are not well known. “Courage” Campaign could have easily targeted Michael Moore, Morgan Freeman, Sean Penn or Meryl Streep. But of course those are the “good rich”. So what about Mr Pujols? He just signed a $250 million contract with the Los Angeles Angels of Anaheim rather than a competing contract with the Miami Marlins. I wonder if he now regrets moving to a high tax state instead of one with no state income tax since there is no way he will be able to avoid it. On a different level, it is really disturbing that the voters are allowed to take such punitive actions against their fellow citizens. However, lets take a microeconomic view of millionaires and the concept of marginal utility which says that each incremental unit conveys less value to the consumer. Total satisfaction is increasing but marginal satisfaction is decreasing. The empirical question is where does the marginal satisfaction of acquiring one more dollar decrease to the point where the earner is indifferent? Surely that point for Bill Gates is different from some relative pauper making $1 million. When the earner is at the point of indifference then the additional dollars can be taxed at higher rates without an appreciable change in behavior up to the point where the millionaire ceases to be indifferent about the increased tax burden. I doubt very seriously if that point is at one million for Californians or if Obama had his druthers $250,000 for the rest of us.
Harold A. Black is professor emeritus in the Department of Finance, University of Tennessee, Knoxville having retired after 24 years of service. He has served on the faculties of American University, Howard University, the University of North Carolina - Chapel Hill and the University of Florida. His government service includes the Office of the Comptroller of the Currency and as a Board Member of the National Credit Union Administration. He also has served on the boards of directors Home Savings of America and its parent company, H. F. Ahmanson & Co., Irwindale, California prior to its merger with Washington Mutual Savings Bank, on the board of New Century Financial Corporation, Irvine, California, then the nation’s largest real estate investment trust and as director and later chairman of the Nashville Branch of the Federal Reserve Bank of Atlanta. He writes an occasional article for the Knoxville News-Sentinel at http://www.knoxnews.com/staff/dr-harold-black/. His web page is haroldablackphd.com