An Arithmetic Problem

Here, I have an arithmetic problem for you. Suppose you have a hundred million dollars invested in nice blue chip stocks. The stocks grow in value at the same rate as the US economy -- they're duds, as growth stocks -- but they pay out a nice 4% dividend. Being a millionaire and all, you like to live high on the hog, so your expenses are $500,000 per year (despite the fact that you bought your house outright, and have no mortgage payments. Hey, you like nice stuff, okay?).

Now. The question is, how much do we need to tax your income, to keep your proportion of the country's wealth stable? Remember, the worth of your assets, your stock in Wells Fargo and General Electric and Shell Oil and so on, is growing right along with the economy. (Actually, they're growing faster, if you know how to pick 'em, but let's pretend.)

Okay. So your dividend income is four million dollars. You spend half a million. To keep up with you -- to keep you from pulling ahead of the economy, and getting an ever-larger piece of the national pie -- we need to take the rest in taxes: we need to tax your dividends, in other words, at 87.5%.

Now, this is not to redistribute anything. This is simply to keep the status quo: this is just to keep economic inequality from increasing. 87.5%.

I don't know if you know the stiffest tax the U.S. levies on dividends? Well, it's 20%. You shell out $800,000 in taxes. Ouch! Still, that leaves $2,700,000 sitting in your checking account at the end of the year. What to do, what to do? Hmm.

Well, you could always buy a bit more Wells Fargo, General Electric, and Shell.