On Paradigm Shifts

by Cindy Offutt
for the “Progressive Views” column, Boerne Star, April 5, 2019

Disproportionately large pennies sitting on top of small dollar bills.
“Money” by Jeffrey Smith is licensed under CC-BY-ND 2.0

It’s a cliché, but it’s true.  No matter how old one gets, one never stops learning.  And sometimes, if one is lucky, the stuff one learns can actually cause a wholesale shift in the way one perceives and analyzes the world.  A paradigm shift, if you will. 

One of the more impactful paradigm shifts I ever experienced occurred many decades ago when, as a student, I took Tax Law 101.  Not to put too fine a point on it, but this class was not exactly the place I expected to experience a change that would forever alter my views of the world around me.

I recall it took me a while to wrap my head around it, but the concept that forever changed how I see the world was called “value of the dollar.” 

It’s premised on the concept that the value of one’s dollars is relative to the number of dollars one earns.  If one earns lots of dollars, the value of each dollar – and each additional dollar – is less than if one earns only a few dollars, in which case the value of each dollar is much greater.

Here’s an illustration.  Jane earns a million bucks a year.  She has lots of dollars.  So from her perspective, dropping $4.65 a day on a large mocha coffee is no big deal.

But consider Jane’s brother Joe.  He earns a salary of, say, the 2018 median household income in the U.S. of around $62,200 per year.  To Joe, dropping $4.65 a day on coffee is a very big deal.  That’s because $4.65 a day represents a far greater portion – or fraction – of his annual income (2.7%) than that same $4.65 a day represents to his sister (0.17%). 

If you’re still with me, you might be wondering why in the world this concept is so important that it could actually influence the way one views the entire world.

Here’s why.  It’s because the “value of the dollar” is the essential concept that forms the foundation of our slightly-progressive tax system.

Now to take it one step further.  

Republicans often attack Democrats for wanting to pass laws that redistribute wealth.  “Fleecing the rich” is how they try to cast it.

But if you take into account the “value of the dollar” concept, it becomes clear that a fair tax system would take more from the wealthy for the straightforward reason that the value of each of their many dollars is way less than it is for poorer families.

In 2017, Donald Trump and the Republican Congress rammed through the Tax Cuts and Jobs Act without hearings and on a purely partisan vote.  Though the new law did cut taxes for some middle class Americans, it did so only marginally.

However, that same tax law gives a much greater tax benefit to the wealthy.  According to an analysis by the nonpartisan Tax Policy Center, the Trump tax law is making the distribution of after-tax income even more unequal than it was before the law was passed.

Or to put it another way, the Trump tax law completely ignores the “value of the dollar” concept underlying progressive taxation.  The Trump tax law redistributes wealth, but it does so in the wrong direction and to the wrong people – which is to say, in an upward direction and to the top 10%.  

Nobody likes taxes, but as Justice Oliver Wendell Holmes once noted, taxes are the price we pay for civilized society.  In this light, the essential question isn’t really whether we pay taxes.  The vital question is who should pay how much in taxes.

If fairness were truly a consideration, tax reform would not be based on the old Republican mantra that tax cuts for the wealthy lift all boats.  Nobody – except perhaps the most ideological (and oblivious) of politicians – preaches that anymore.

In a fair taxing system – one that takes into account the “value of the dollar” – tax reform would include something nearer to what Senator Elizabeth Warren has suggested:  Levy a 2% tax on assets above $50 Million and a 3% tax on assets above $1 Billion.

And regardless of what you may think about Congresswoman Alexandria Ocasio-Cortez, her idea of levying a 70% tax on tremendous wealth has at least generated discussions about the appropriate role of extreme wealth in our society.

After all, no less a wise man than Jesus of Nazareth preached the message, “To whom much is given, much is expected.” (Luke 12:48)

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