The Blogs: Taxes Are Not What You Think

Forget “Fair Share”: Why the Rich Owe Less Than the Poor

Few topics generate more moral outrage and less conceptual clarity than taxes.

“The rich don’t pay their fair share.”
“Make billionaires pay.”
“Tax the wealthy.”

These slogans dominate political discourse, yet they rest on a fundamental error: the assumption that all taxes are the same thing, serve the same purpose, and should therefore obey the same moral logic.

They are not.

And once we stop pretending otherwise, an uncomfortable conclusion emerges — one that many sense intuitively but refuse to articulate:

In a sovereign currency system, taxing the poor more than the rich can be economically necessary.

Not morally virtuous.
Not politically pleasant.
But functionally unavoidable.

To understand why, we must first step back and establish a framework — and dismantle the single biggest source of confusion.

Before going further, one clarification matters.

By “the rich” and “the poor,” I am not referring to moral archetypes, cultural identities, or fixed social classes. I am describing economic positions defined by income structure, asset ownership, and—most critically—money velocity. One group primarily holds capital and low-velocity assets; the other earns wages and spends most of what it receives. These are functional categories, not judgments of worth, virtue, or entitlement.

A Universal Framework

What follows is not an argument about American taxes per se. It is a framework for understanding any modern sovereign tax system. Whether the issuer is the United States, the United Kingdom, Israel, Japan, Canada, Australia, or any comparable nation, the underlying mechanics are the same.

The United States is used here because its structure makes these distinctions visible. Federal, state, and local taxes are clearly separated, and most Americans actively file tax returns, which forces some awareness of different tax categories. In many other countries, these lines are blurred—taxes are often calculated and withheld automatically, with little direct interaction from the taxpayer.

The administrative differences can obscure the logic, but the logic itself does not change. The same instruments are at work, even when hidden from view.

1. The Category Error: Calling Everything “Taxes”

The word tax is used to describe several fundamentally different instruments that operate at different levels of government and serve different purposes. Lumping them together creates moral and economic nonsense.

In the United States alone, we speak of:

Federal taxes
State taxes
Local and municipal taxes
Property (real estate) taxes

These are often discussed as if they were interchangeable. They are not. They function differently, signal different information, and obey different constraints.

The confusion does not stop there. Even within each level, taxes are subdivided by what they target: personal versus business income, wages versus investment returns, capital gains versus dividends, consumption versus savings, residential versus commercial property, and so on. These distinctions exist for a reason. Each category touches a different part of the economic system and influences behavior in a different way.

We will not descend into accounting detail here. This is not a tax manual. It is a conceptual framework. The point is simply this: when radically different instruments are collapsed into a single moral bucket labeled “taxes,” meaningful discussion becomes impossible.

Failing to distinguish between these categories leads to endless, sterile arguments — especially when people project household logic onto a sovereign government.

So let’s separate the categories.

2. Federal Taxes: Not What You Think They Are

The United States is a monetarily sovereign state. It issues its own currency, denominated in dollars, which it alone has the legal authority to create.

This has a crucial implication:

Federal spending is not operationally financed by federal taxes.

This does not mean taxes are irrelevant, fictional, or optional. It means they do not function the way household income does. When Congress authorizes spending, dollars are created. When federal taxes are paid, dollars are extinguished.

As I argued in “The National Debt: The Most Misunderstood Number in America,” the so-called national debt can be understood as:

The cumulative net dollars the government has injected into the economy — spending more than it has taxed back.

This framing is not radical. It is modern monetary mechanics — obscured only because acknowledging it destroys many comforting moral narratives.

So why tax at all?

3. The First Function of Federal Taxes: Creating Demand for Money

The most fundamental purpose of federal taxation is currency demand.

As discussed in “Money, Markets, and the Illusion of Ownership,” money has value not because it is backed by gold or divine promise, but because the state requires it. If you owe taxes denominated in dollars, you must obtain dollars. That requirement alone creates a universal, non-negotiable demand.

This is not theoretical.

Taxes are compulsory, not voluntary.
Enforcement is backed by law.
Legal tender laws mandate acceptance of dollars for settling debts.
The United States taxes its citizens on worldwide income — even when they live abroad.

This last point is critical. Almost no other country does this. As a result, millions of Americans overseas must continue to earn, hold, and transact in U.S. dollars, reinforcing global demand for the currency.

From the perspective of currency demand, the logic is obvious:

Those with the greatest capacity to absorb and hold currency should be the primary anchor of that demand.

In other words: taxing the rich makes structural sense.

But currency demand is only the first function.

4. The Second Function: Inflation Control Is About Velocity, Not Virtue

Inflation is not caused by debt size.
It is not caused by numbers on a balance sheet.
It is caused by money moving faster than real supply can respond.

A trillion dollars sitting idle does not raise prices. A billion dollars chasing bread, rent, and fuel does.

This is why velocity of money matters more than quantity.

And this is where the discussion becomes uncomfortable.

Who spends immediately?

Wage earners
Lower-income households
People living paycheck to paycheck

Where does that spending go?

Food
Housing
Energy
Transportation
Essentials with limited short-term supply elasticity

Injecting new money directly into this segment — or allowing it to circulate unchecked — puts immediate pressure on prices that cannot adjust smoothly.

By contrast, money flowing to the wealthy:

Is often saved
Parked in financial assets
Invested long-term
Spent on luxury goods with separate price dynamics

Asset inflation is real, but it does not register the same way as CPI inflation. A rising stock portfolio does not make bread more expensive.

This is not a moral judgment. It is a mechanical one.

5. Why Wage Income Becomes the Inflation Target

If inflation control requires withdrawing high-velocity money, then logic dictates where taxation must concentrate.

In modern economies, the highest velocity income stream is wages.

This explains several otherwise “unfair-looking” realities:

Payroll taxes
Broad consumption taxes
Flat or mildly progressive income taxes
The political resistance to sharply reducing them

They are not primarily about punishment or redistribution. They are monetary brakes.

This is also why slogans like “tax the rich to fight inflation” fail as policy. Capital taxation affects asset prices. Wage taxation affects consumer prices.

Different tools. Different targets.

6. Redistribution and Behavior: The Third Function

Federal taxes also influence behavior and redistribute resources — but this is a secondary function, not the primary one.

Tax credits, deductions, penalties, and incentives are levers:

Encouraging investment
Discouraging speculation
Shaping labor participation
Adjusting inequality at the margins

But redistribution is constrained by the first two functions. You cannot redistribute in ways that destabilize currency demand or ignite inflation without consequences.

This is where most political arguments collapse: redistribution is treated as the purpose of taxation rather than a byproduct constrained by monetary reality.

7. State and Local Taxes: Signals, Not Sovereignty

State and local governments are not sovereign currency issuers. They cannot create dollars. Their taxes actually fund their budgets.

This changes everything.

State and local taxes:

Finance infrastructure
Pay teachers, police, firefighters
Maintain roads and utilities
Support local services

Just as importantly, they serve as signals.

People “vote with their feet.” They move. They compare services to tax burdens. This decentralized feedback system is what allows resources to be allocated without central planning.

A federal government trying to micromanage local allocation would recreate the failures of every planned economy in history.

As articulated in “The Capitalist Ideal”:

Central planning inside a firm is efficient; central planning over a society is tyranny.

8. Property Taxes, HOAs, and the Myth of the Wealth Tax

The United States already taxes wealth — selectively and functionally — through property taxes.

Real estate taxes:

Fund local services
Act as congestion pricing on land
Signal where resources are strained
Are enforceable through foreclosure

Homeowner Association fees function similarly. They are quasi-taxes:

Mandatory
Enforced
Used for shared infrastructure
Backed by foreclosure authority

This is why abstract “wealth taxes” are largely unnecessary — and often incoherent — in sovereign systems. Wealth that does not circulate does not destabilize prices. Wealth that does circulate is already captured through income and transaction taxes.

Where wealth taxes do exist, they usually reflect structural constraints rather than economic clarity.

In much of Europe — particularly in countries such as Spain or Italy — governments are not monetarily sovereign. They cannot create euros. They function more like U.S. states than like the federal government and therefore must tax to finance spending. In that context, a wealth tax becomes a revenue instrument, not a monetary one.

Different constraint. Different logic.

9. Fairness Is Not Symmetry

The deepest mistake in tax debates is the belief that fairness means equal treatment across categories.

It does not.

Fairness in taxation means using the right instrument for the right function.

Currency demand anchors → tax capacity holders
Inflation control → tax high-velocity income
Local services → tax local beneficiaries
Behavior shaping → tax targeted actions

When people say “the rich should pay more,” they are usually expressing moral anger, not economic reasoning.

When people say “the poor shouldn’t be taxed,” they are often ignoring inflation mechanics.

Neither sentiment survives contact with reality.

Conclusion

Taxes are not a moral scoreboard.
They are not a punishment ritual.
They are not a confession of virtue.

They are instruments.

And once we stop pretending that all taxes are the same — once we separate sovereignty from locality, velocity from stock, signaling from redistribution — we arrive at a conclusion many would rather avoid:

In a functioning monetary system, the question is not who ‘deserves’ to be taxed, but which money must be slowed down, anchored, or redirected.

That answer is not emotionally satisfying.

But it is coherent.