Will Higher Taxes Really Hurt Wealthy Taxpayers?

In his recent New York Times article, Higher Taxes Help the Richest, Too, Robert H. Frank opines that wealthy taxpayers would actually benefit from paying higher taxes. Frank explains that the cognitive illusion—the belief that higher taxes will hurt an individual’s ability to satisfy her material desires—causes wealthy taxpayers to shudder at the thought of paying higher taxes. However, this belief does not take into account that taxes affect everyone.

Wealthy individuals have the ability to purchase positional goods (goods that are inherently in short supply—like a Park Avenue penthouse).  These positional goods are only available to the highest bidder, so many wealthy individuals opposed to higher taxes falsely believe that higher taxes will lower their ability to bid on these positional good. However, because taxes affect everyone, the bidding contest is essentially not affect because everyone has lost money to taxes. In other words, while these positional goods will continue to be bought by the same people regardless of the taxes paid, the taxes themselves will beneift everyone by improving roads, helping schools, and aiding in the myriad of other beneficial activities taxes help fund.

See Robert H. Frank, Higher Taxes Helps the Richest, Too, The New York Times, Jan. 28, 2012.

Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.