This is the Cato Daily Podcast for Thursday, April 19th, 2012.

I'm Caleb Brown.

When you want to tax millionaires, what is it exactly that you want to do?

Tax their assets or income? It's an important distinction because

high income does not automatically mean you're wealthy. The failure to make that

distinction clear has some real ramifications for the tax debate going on now in

Washington. Swami I R the research fellow at the Cato Institute's comments.

As we learn economics at high school what is income? Income according to that is the value that you

add by a particular act of production, right? So the different kinds of things that

add value are salaries and wages, there are rents, and there are profits of companies.

So all true income as defined by economics is either wages, rents or profits.

All kinds of other things may appear to be income they are not.

An ex-wife might think that alimony is income.

It comes to her every month, but it's not income because there's no value addition. It's just a transfer from her ex-husband.

A kid sitting in college getting $500 a month from his father, he may regard that as income. It doesn't income, it's just a transfer from the father to him.

So when we look at some of the millionaires who are earning enormous sums from dividends,

now you know, when a corporation earns profits that is certainly income.

But when out of that part of it is then distributed as a dividend, that distribution of the

dividend is a transfer.

In principle, it's no different from a father sending pocket money to his son. So when people start taxing

the dividends or regarding the dividends as income you have to say what this is

not income this is only a transfer.

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