The first thing we must consider is the diminishing returns of services. A two times more expensive car isn’t twice as fast or comfortable or safe. Spending twice as much on health care won’t get you twice as many healthy years. Being twice as rich won’t make your life twice as good, so being poor should be just a bit worse than being average. Unfortunately it’s not the case, because of three reasons:
- Legal: you can’t buy cars without airbags and other security measures even if you’d accept the 1:100000 chance of dying in it, because selling such cars is illegal. So is sending your kid to school alone like your granddad did, even if you’d accept the 1:1000000 chance that he’ll get killed traveling alone. There can’t be “limited hygene restaurants”, even if you’d accept the 1:1000 chance of getting a mild disease because of them. Similarly you can’t opt out of the government spending on Space project, army or Olympia, even if you could live without these. So, you must spend your money on expensive cars, baby sitters, restaurants and taxes, even if you can’t afford these.
- Technical: many services form a system which needs compatibility between the parts. The railroad system optimized for 160km/h trains would have serious problems if you’d send an old diesel car on them to transport the poor with 40km/h. The electric system wouldn’t allow some parts of it having outages once a week while other parts have outages once a year. If the system is designed for a level of service, everyone must use that level and can’t just use a cheaper one, even if it would be available.
- Social: despite you can technically wear an old T-shirt, jeans and shoes, your social life and likely your employment would suffer if you’d do it. There are no laws to wear suit and tie or dress and heels but people do them and expect others to do the same. If you don’t fit in, you’ll be excluded or even abused.
As a result, the average spending power of a society becomes a standard of spending level for everyone. If you can’t afford it, you can’t just downgrade as cheaper alternatives are not available in your country, despite they are widespread in poorer countries. If your income is below average, you’ll struggle to keep afloat, despite you earn 10x more than Africans. If your earning potential is significantly below the average, you’ll become unemployable, either because of formal minimal wages or because of your salary wouldn’t be significantly more than welfare (which is objectively existing even in the USA). This is why there is poverty despite the income of the Western poor people increased greatly in the last century and much higher than the income of people in poorer countries.
My utopia society would be separated into several (practically 4-5) different territories. People are free to choose which one they live in and goods are also free to move between them. There is no tax in any of them except for one type, a fixed monthly fee for living in that territory. If you don’t pay it, you’ll be expelled to a lower tier land. If you return (without paying first), you go to jail. The fee is different in every territory, my guess would be $50K/year for the Level 5, $15K/year for L4, $5K/year for L3, $1.5K/year for L2 while L1 is free. Each territory would have its own government and budget and these taxes are the only income source of them. This means that the governmental spending is very different in these territories, meaning much better health care, transportation, police in higher levels. L1 would get small welfare from L5 and 4 and the Army protecting the whole country would also be paid by L5 and 4. Along with spending, regulations on safety would also be more and more loose in lower tiers, along with the maximum winnable compensations for damages in lawsuits. This means that companies can use cheaper technology accepting risks of accidents in lower tiers. As a result all territories would have uniform systems optimized for the spending power of the residents.
- Near zero tax administration and evasion. You can only cheat tax by being an illegal immigrant, something that is easy to catch if there is political will.
- Taxes do not damage business or work. If your salary or profit increases, it’s 100% yours. Most regulations – which are to prevent hiding income from taxation – are not needed.
- No need for any welfare in L5-2. If someone is poor, he can downsize any time.
- No matter how little GDP one can make, he can always work and make his living, since he can pick a territory where his GDP producing power is around average. Maybe it’s just a L1 living, but still. This means full employment. Only completely disabled people would need welfare.
- Very low in-territory Gini – by definition. The whole country Gini might not decrease, but it’s irrelevant as people measure their wealth to their neighbors and here everyone would be as rich as his neighbors. The country-Gini would be just as meaningless as the World-Gini now. No one cares that there is a huge income inequity between Americans and Somalians while the big in-American inequity is constantly criticized, despite the first is bigger.
- Practically no crime in L2-5. If a criminal is found guilty, he is also sentenced to repair the damages. Until he does, his tax payments are forwarded to the victims, so he cannot pay tax, therefore cannot live anywhere but L1. If he enters any higher tier land, he is imprisoned for tax evasion.
If a high level land needs low-paying jobs locally (janitor), it can offer “guest worker” status, they are paying tax in their home, the lower level territory where their family lives and where they must return if they lose their jobs. Of course a territory would only abandon its tax if there is no other way to do that job. No family is allowed to come with him, it’s guest worker, not immigrant.
While rich people can choose to live in a lower level land, the lower standards of living and especially the limits on damages would discourage most of them from doing so. Not many would drive a $500K supercar if he knew that if someone crashes into it, he can’t get more than $10K compensation. Please also note that the higher tier land tax is not percentage based, and even the highest level tax would be smaller than having private security, private doctors, private teachers to uphold high living standards in a lower level land.
The only permanent disadvantage I can think of is social: someone who becomes more rich or more poor than his family and friends will move away from them. However moving to the other end of the country is already common, so it’s not a big one. Of course by paying 1 week worth of tax one can visit higher tier land for tourism or family reunions, especially if the richer member pays for them.
There would be another disadvantage during implementation. When the territories are first drawn, millions of people would be in wrong place. Those who find themselves in too low level land will likely suffer serious financial loss in the form of their homes devaluing and will demand compensation. Those who find themselves in too high level land gain wealth as homeowners, but they can’t upkeep themselves, so have to sell it and move. So the implementation would cost a lot, but after it’s done, it will work forever without the problems afflicting our societies.