don’t tax the rich, pay the poor: rethinking economic equality

people often call for taxing the rich to address inequality. curiously, they almost never seem to realize the problem can be solved from the other direction: instead of taxing the rich, pay the poor.

this might seem both mathematically obvious and simultaneously paradoxical. if you’re going to pay the poor, where are you going to get the money from? the most simple, immediate, obvious answer is, everyone — yes, including the poor. let me explain.

imagine we enact a tax of x percent on earnings and evenly distribute the proceeds to all citizens. this even distribution would effectively be a refundable tax credit. (“refundable” just means if it exceeds what you owe, you get the remainder back as cash.) this would leave the bottom income deciles better off — they would receive more back from that universal lump sum distribution then they would pay as a percentage of their income.

to visualize this, consider the following table of tax rates.

┌──────────────┬────────────┬────────────────┐
│ Gross Income │ Net Income │ Effective Rate │
├──────────────┼────────────┼────────────────┤
│ 12,000$      │ 17,200$    │ -43.33%        │
│ 20,000$      │ 22,000$    │ -10.00%        │
│ 25,000$      │ 25,000$    │ 0%             │
│ 40,000$      │ 34,000$    │ 15.00%         │
│ 80,000$      │ 58,000$    │ 27.50%         │
│ 160,000$     │ 106,000$   │ 33.75%         │
│ 320,000$     │ 202,000$   │ 36.88%         │
│ 640,000$     │ 394,000$   │ 38.44%         │
│ 1,000,000$   │ 610,000$   │ 39.00%         │
└──────────────┴────────────┴────────────────┘

for instance, a person whose gross income is 40,000$ pays 15% of their income in taxes. whereas someone who earns a million pays 39%. this sure does look progressive, doesn’t it?

in fact, people grossing below 25k actually have a negative tax bill — they receive a refund. so while the marginal tax rate, the additional amount you pay for each dollar you earn, might be flat, the effective tax rate — the percent you pay in total as a function of your income, is extremely progressive.

now you might readily enough acknowledge the soundness of the math here, but then the question arises, why do this? why not just have progressive marginal tax rates?

well, first of all i could ask, why not? why favor one approach to the other in the first place? but it turns out there are a lot of advantages to the “pay the poor” approach versus the “tax the rich” approach.

flat marginal tax rates are administratively much simpler than progressive ones. there’s another profound advantage: they’re neutral with respect to time. with progressive marginal tax rates, you’d pay different taxes if you worked intensely one year and took the next year off compared to if you worked part-time and earned 50% in the first year and 50% in the second. this time-based distortion doesn’t make logical sense — why should the government care about when you earn your money? a flat rate with a universal dividend maintains effective net progressivity without this arbitrary timing penalty.

aside from allowing for non-distortionary flat marginal rates, this “pay the poor” approach allows us to more intelligently choose not just whom to tax, but what to tax. and this is crucial, because different taxes have a different effect on the size of the economic pie. if we can accomplish a certain amount of redistribution to make the slices of the pie more even, then we should ideally couple that with an approach that maximizes the overall size of the pie. it turns out there are some pretty straightforward ways to do this.

in economics, we have the notion of deadweight loss, which is an avoidable inefficiency in productivity. that is, the pie is smaller just because we made bad decisions. this can occur in the social safety net. suppose the government spends 100$ to buy you some sort of in-kind benefit that you only value at 70$. now there is 30$ of dead weight loss. essentially, it’s like we took 30$ of value and just tossed it in a furnace. but we can also get the same effect when we apply taxes to wealth that is generated by humans. suppose a working mother can earn 30$ an hour, and pays for child care provider 20$ an hour. but now we tax her income such that her take-home pay is below 20$ an hour. now it makes more financial sense for her to stay home and work, even though the most productive option was for her work and pay for child care. of course we’re simplifying a bit here because we’re not factoring in the cost and benefit of spending more quality time with her child, versus advancing her career, which she might be quite passionate about. we could certainly make the example more realistic by factoring some hypothetical numbers in for this, but it would just make the example more complicated and we could easily still arrive at the same result: a situation where the tax pushes the decision over the threshold and reverses it causing economic inefficiency also known as dead weight loss.

but there are certain types of tax that don’t have any dead weight loss. most notably is land value taxes, which are kind of like property taxes except that they only tax the land, which isn’t created by the human owner who is paying the tax and thus can’t affect their incentives. while a person can build new buildings on their property and that can increase the overall property values, it’s very little they can do to directly change the value of the land. the value of land is predominantly driven by external factors like access to jobs, stores, and other people. put simply, when we tax land we don’t get less land. now of course here’s where someone might object, if they came into this conversation at this point without the preceding parable, that a tax on land penalizes a small homeowner or retired old lady in the same percentage terms as it does a billionaire. but as we have seen, we can make up for this with a simple universal subsidy which produces a net progressive distribution. instead of taxing the rich we pay the poor. but since we used a tax that doesn’t shrink the economic pie, because as we said taxing land can’t make less land the same way taxing work can lead to less work, then there’s actually a bigger economic pie to go around.

we can take this in an even more pronounced direction through what is called pigovian taxation. pigovian taxes have not neutral dead weight loss but negative dead weight loss. these are essentially taxes on pollution, though the more general economic term is negative externalities. those activities which harm third parties. imagine a factory engaging in a much greater level of production than they would because they aren’t paying the cost of the environmental harm they’re doing that affects other people. if the factory had to pay those costs, they might produce a lot less of their widgets and that capital might flow to other business activities which have greater net productivity when accounting for the externalized cost that they currently don’t account for. thus, by taxing these activities, we can actually make the economy more productive.

by combining the holy trinity of pigovian taxes, land value taxes, and universal basic income (u.b.i.), we can share the pie without shrinking it.

this approach has several additional advantages over traditional progressive taxation. first, it’s simpler to administer. rather than a complex web of tax brackets, deductions, and exemptions that require armies of accountants and tax attorneys to navigate, we have a straightforward system: tax what we want less of (pollution, land monopoly) and distribute the proceeds equally.

second, it eliminates poverty traps. traditional welfare systems often create perverse incentives where earning more can actually leave recipients worse off as benefits phase out. this phenomenon, known as the “welfare cliff,” traps people in poverty by punishing advancement. with a u.b.i. funded by land and pigovian taxes, additional earnings are always beneficial, preserving the incentive to work and contribute.

third, it acknowledges the philosophical reality that land and natural resources are not products of human labor but common inheritances of humanity. when we tax income from work, we’re taxing something someone created. when we tax land value or pollution, we’re charging rent on using or abusing what belongs to everyone.

fourth, it separates the questions of “how much redistribution” from “how we tax.” these are distinct policy questions that should be decided independently. we can debate what percentage of g.d.p. should be redistributed while simultaneously optimizing our tax system to maximize efficiency.

critics might argue that land value taxes would hurt homeowners. but remember our table above — most homeowners would receive more in the universal dividend than they pay in land taxes. only those with very valuable land holdings would be net contributors. this actually addresses the current problem where young people are increasingly priced out of homeownership in desirable locations.

others might worry about implementation challenges. how do we accurately assess land values separate from improvements? how do we measure and price pollution? these are legitimate concerns, but they’re technical problems with technical solutions. modern data analysis and satellite imagery make land valuation more accurate than ever before. and while pollution measurement isn’t perfect, even imperfect pigovian taxes are better than none at all.

the most profound shift in this approach, however, is psychological. “taxing the rich” frames the conversation as taking from one group to give to another, inherently divisive and adversarial. “paying everyone” from our common resources reframes the conversation around our shared inheritance and collective prosperity. it’s not about punishment, but about proper stewardship of what belongs to all of us.

consider that alaska has been running a small-scale version of this system for decades through its permanent fund dividend, which distributes oil revenue equally to all residents. it’s consistently one of the most popular government programs in the state, supported across the political spectrum.

we can learn from this example and think bigger. by taxing not just oil but all land value and pollution, and distributing the proceeds universally, we could create a system that reduces inequality, eliminates poverty, preserves work incentives, and maximizes economic efficiency — all without the divisive rhetoric of class warfare.

the math is clear. the economics is sound. the philosophy is just. the only question is whether we have the political imagination to move beyond the tired paradigm of “tax the rich” and embrace a more universal vision of shared prosperity built on our common inheritance.