So what happens if the government takes Mr. Kendrick’s $84 million away? Answer: A bunch of zeros and ones get shifted around on bank computers. Mr. Kendrick goes right on pushing his cars around. And nothing else has changed.
Unless, of course, the government decides to spend some of that $84 million. Now the government consumes more goods, Mr. Kendrick consumes no fewer, so someone else must consume less. Who is that someone else? The answer depends on the details of the transactions, but the most likely answer is that when Mr. Kendrick withdraws $84 million from the bank to make his tax payment, the bank makes fewer loans, interest rates rise, and someone cancels a vacations, or postpones a car purchase, or abandons a half-built factory. Who bears the burden of the tax? The people who cancel their vacations and car purchases and factories, that’s who. Not Mr. Kendrick.
Now this is a caricature – like a lot of good economic description – but it does illustrate a point. If we place tax on one group, be it the rich, or the “bankers”, it isn’t clear who actually faces the burden of this tax until we have a look over all the changes in choices that occur … tax incidence is key.
This is one reason why I remain against a Robin Hood tax.