As income inequality rises, people who make things really need to exercise imagination to dream up new categories of luxury goods to sell to the economic elite. Today we get luxury doghouses:
Take, for instance, the Palladian-style mini-mansion that Glenna and Ed Hall bought at a charity auction three years ago for about $300. With Jeffersonian columns that match the ones on their home in Roanoke, Va., the two-foot-tall doghouse makes a perfect accent for the garden. No one seems to mind that the garden is off-limits to Maggie May, their 28-pound whippet-borzoi mix — least of all Maggie May.
“We bought the house because it looks a lot like our house,” said Mrs. Hall, 66, a retired interior designer. “Maggie’s never been in it. She’s a house dog.”
This is what's known in the business as the "diminishing marginal utility of money." If you have substantial savings and an income of $550,000 a year, then an extra $25,000 doesn't necessarily do much to improve your life. You may end up spending it on a doghouse that your dog never uses. By contrast if you have an income of $50,000 and a negative net worth, a check for $25,000 can do a great deal to improve your life. That's the basic reason why "spreading the wealth around" can make the world a better place.
Note also that while in principle I think we should tax consumption rather than income, the dividing line between consumption and investment can get a little fuzzy. A really fancy doghouse is arguably a form of residential investment, but in practical terms I'd consider it consumption.