It is not that complicated

Wealth and Taxes, Part IV

So, if arguing about the ill-defined and ill-measured distribution of wealth lies in service of the wealth tax, what is the question to which the wealth tax is an answer?

What is the theory of optimal taxation?

Economists often start with complications and cannot work backwards. Start, always, with supply and demand. In a fair market we pay market price for goods and services. Optimal means no arbitrage pricing in the basis. Then, having the complete market model,  one has to add the boundary conditions which violate the fair market assumption, like forensic accounting.

If government sold apples in the fair traded apple market then the 'tax' is the market price. What are the violations?

Congress is not a free market, it is not a proportional system, it is a disparate collection with the House and Senate off scale of each other. No proportional democracy to simulate a fair market. So, what is the optimal taxing system that allows us to smoothly get around the volatility? We hire the primary dealers and pay a fee.

Primary dealers have been overcharging on that for the entire period since 1980. That is one point at which the wealthy owe Treasury for back fees, a forensic accounting would reveal that. Then keep on applying the method.

How much overcharge has the taxpayers suffered? Judging from fair market value of ATM fees and the science  of value added nets we can use the wedge fee for monopsonies as defined in econ 101. I get, back of the envelope, the wealthy owe the taxpayers about a half point compounded yearly since 1980.

Start there, make that point. One cannot see much farther as pricing is not that accurate until this problem is fixed. If the leading constraint on fair pricing is not solved first, then the rest of the theory gets you nothing.

All of these problems are one of orthogonalization, trying to find the path back to optimum disinterest.  The largest correlations are removed first, then the second larges and so in,  It is a step by step reduction process that always leaves you one step closer to a fair market model.