Here’s a crazy half-baked economics idea:
As a society, we could make it easier to discriminate prices based on income. We could set up a system where it’s easy for businesses to have pricing schemes like “This coffee costs $3 for people with income $20k or less, and costs $6 for people with income $130k or higher, and we linearly interpolate between those two prices for people whose incomes are somewhere in the middle.” This could be implemented with credit cards which automatically pay in this way, such that the person selling the coffee doesn’t see your income.
To clarify, I’m not suggesting that the government should force anyone to use this, and I’m not suggesting that they even encourage it. I’m just proposing that the IRS should set up a system to allow companies to do price discrimination in this way.
What effect would this have?
I think it’s likely that willingness to pay for coffee correlates with income. So I suspect that even though they don’t have to, coffee shops would start to use this kind of pricing scheme. This would result in lower prices for poor people, higher prices for rich people, and higher profits for coffee shops. This would probably also increase the number of coffee shops, because the increased profits would mean that the fixed cost of a coffee shop was going to be justified more places.
I don’t think rich people could do anything about this, any more than we can do anything about other price discrimination schemes. The only reason this currently isn’t a thing is that there are high transaction costs on it.
This would obviously end up transferring money from rich people to poor people. The exciting and dangerous feature of this is that after this system was established, no-one controls the level of redistribution.
One other feature/bug of this system is that it would probably make it easier to infer people’s incomes. This would be a big change but I don’t see any reasons that you couldn’t have a society where people mostly know how much money everyone else is making.
–
Some counterarguments:
“But wouldn’t some companies not adopt this, and then rich people would prefer those companies?”
I don’t think so. Suppose other companies are doing this, and you decide to try and compete by not adopting this. What price level should you set? Well, poor people obviously aren’t going to be buying from you, so they’re right out. So the profit maximizing price is going to be higher than it otherwise be. So the rich people still have to pay more.
“Wouldn’t this just result in increased prices for the rich and not decreased prices for the poor?”
I suspect prices would drop a lot for poor people on items where there’s low marginal cost and high fixed cost, eg coffee shops or software or music. Many goods and services have high fixed cost and low marginal cost; those goods would have discriminatory pricing models.
–
This is a fun example of a redistributive policy which theoretically doesn’t require a government to do anything except enforce contracts. I think it’s legal to ask people to sign a contract where they state their taxable income for the previous year and promise they’re telling the truth. So a company could set this up without any government intervention at all.