By Stephen Buller
Washington Governor Ferguson is championing a new “millionaire tax” as a way to address budget shortfalls and income inequality. Both of these are real and serious issues, but will yet another tax solve the problem? Let’s talk about this tax specifically and use it as a springboard to critique our overall tax system.
“In this world nothing can be said to be certain, but death and taxes.” This phrase was popularized by Benjamin Franklin, though if it is to be believed, people have understood it for a very long time. It speaks to two eternal, human truths – our mortality and the nature of power.
While I would argue death looks very similar for each of us, taxes come in different shapes and sizes. It’s important to understand the terms “regressive” and “progressive” when discussing taxes: The former impacts lower-income individuals disproportionately, and the latter the opposite.
Washington’s sales tax on retail goods is regressive because, assuming both the rich and poor drink milk, a $1 tax on a $10 gallon of milk represents a larger portion of a poor individual’s income. The federal income tax is progressive because the tax rate increases as incomes increase.
The proposed millionaire tax would be progressive, taxing 9.9% of an individual’s income over $1 million (M)/year. Currently, it would only affect 0.5% of Washingtonians. To the other 99.5%, this might sound like a wonderful idea, but there are a few problems with the simple mantra, “tax the rich.”
First, if a government specifically targets the wealthiest in their jurisdiction, they are targeting the people who have the greatest means to pick up and leave. Jeff Bezos is a perfect example, having recently moved to Florida, likely to avoid Washington’s new capital gains tax.
Second, if we base taxes off absolute numbers, like $1M, we must consider the United States Treasury’s mismanagement of our currency. That $10 gallon of milk cost $0.36 in 1913, the year the Federal Reserve was founded. $1M might seem like a large income in early 2026, but give it a few years, and it will be below the poverty line. An example of a similar issue is the alternative minimum tax, which affected 155 people when enacted in 1969 and is projected to affect more than 7M people when the Tax Cuts and Jobs Act expires in 2026.
Third, all taxes are slippery slopes, or a foot in the door if you will. Milton Friedman said there was nothing so permanent as a temporary government program. The current federal income tax law started (also in 1913, interestingly) as a progressive tax of 1-7% on incomes over $500,000/year. Now, you’ll pay 10% on income over approximately $16,000/year, increasing progressively.
Note how all three of these work together: As wealthy people flee jurisdictions or find other ways to avoid taxes, governments lose tax revenue. This leads them to expand the tax base, affecting more people. All the while, our federal government prints more currency, causing the prices of everything to go up – another (stealth) tax.
Enough about the problem. What’s the solution? Of course, it’s complicated. But the simplest place to start is with the other side of the budget equation. Every individual of a certain age understands they must spend less than they earn or risk going bankrupt. But our governments don’t follow this simple monetary law.
One of the reasons for this is that the U.S. possesses the world reserve currency and therefore grapples with the “Triffen Dilemma,” named after economist Robert Triffen. This dilemma is also a paradox: Because all countries across the world need U.S. dollars to trade with each other, the U.S. must run trade deficits, but creating dollars to do so inherently erodes confidence in the dollar, which risks losing its status as world reserve currency.
Possessing the world reserve currency has been fantastic for the U.S. for many years, allowing us to effectively export inflation (dollars) and import real goods and services. But political moves like sanctions, barring unfriendly nations from the dollar trade system (SWIFT), and straight up seizing Russia’s reserves have accelerated the decline of the dollar, and other nations are finding ways of trading amongst each other outside the dollar system. I would be more adamant about protecting the dollar if it helped the average citizen, but the massive wealth transfers are going … elsewhere.
As I said, It’s complicated. Budget deficits are only one of our problems. Maintaining world reserve currency status has given Americans higher standards of living than much of the world, and when we lose it, we may be surprised at the true cost of things.
However, when we lose the ability to create trillions of dollars out of thin air and export it around the world, purchasing real goods and services in return, never-ending deficits will become impossible. Governments will be forced to spend less than they take in. This will force them to assess where tax dollars are being spent, and it will incentivize people to root out fraud and abuse.
In my opinion, the solution to government mismanagement of tax dollars is not to give the government more tax dollars. It is to force them to assess the programs that actually add value to their constituents. And the best way to decrease income inequality is not to punish people for earning more, but to agree as a society (through tax and other laws) to use real money, rather than money the government can create at will and give to whomever they feel is deserving.
Remember, if the government wanted everyone to “pay their fair share,” everyone would pay X% of their income, and that would be the end of it. Government is far more complicated than that, made up of millions of individuals, all incentivized to keep their jobs, or get a promotion by creating more government jobs, or secure their job by creating another program. And we haven’t even touched on all the other nuances in politics …
The U.S. dollar faces increasing challenges to its status as world reserve currency, and the U.S. is making bolder and bolder moves on the world stage to hold onto it. We will either move to a sensible money, like gold and silver, in a methodical, coordinated way with other world governments, with a focus on peace and prosperity … Or we will squeeze tighter and tighter until the whole thing breaks.
My hope is for the first. My bet is on the second.
