This article presents a brief excerpt from the analytical paper The Illusion Economy How Taxes Become a Phantom Solution to State Problems You can follow my account on the Academia to access the full paper upon its publication or read it in The Ilantic Journal
Before I dive into the heart of this discussion, I want to extend my congratulations to Zohran Mamdani on his victory in the New York elections I express my political support for him and believe in his vision for a more equitable city However, in this article, I want to address something that has been weighing on my mind something that transcends simple partisan loyalty and speaks to the very nature of how we conceptualize taxation and wealth redistribution in modern society Mamdani has been explicit about his intention to implement progressive taxation and increase taxes on the wealthy during his tenure. I'll be honest: I don't want to sound pessimistic, but I believe we can benefit from this approach only under one critical condition that the additional tax revenues are directed to an independent fund managed by the government, specifically dedicated to addressing sensitive public issues. Without this structural safeguard, I fear we're entering what I call the "illusion economy" a system where taxes become a phantom solution that creates the appearance of progress while failing to solve the underlying problems.
The Psychology of Taxation Why the Wealthy Resist
Let me start with a fundamental observation that shapes my entire argument: the wealthy don't hate taxes because they're greedy or selfish by nature They hate taxes because they perceive them as sunk costs money that disappears into a governmental black hole, consumed by bureaucracy, mismanagement, and initiatives that never seem to produce tangible results. This psychological reality is the foundation of tax resistance, and until we address it, any progressive taxation scheme will face not just political opposition but a fundamental crisis of legitimacy
I've spent years studying economic behavior, and one pattern emerges consistently: people are willing to invest when they see returns, but they resist expenditures that feel like throwing money into the void. The current taxation model operates on the latter principle. We take money from productive sectors of the economy and redistribute it through channels so opaque and inefficient that even the beneficiaries often struggle to identify where the funds actually went This brings me to my central thesis: tax increases must be strategically allocated for structural reforms. I propose allocating approximately 1% of profits to solutions that can be developed into sustainable business models where possible. Imagine this by framing certain government problems as opportunities for commercial models and giving the right to retain 1% or more of the profits, we might actually make wealthy individuals accept this idea. Why? Because some government problems genuinely have the potential to become business models
This isn't just theoretical musing. It's a fundamental reimagining of the social contract between wealth and state.
From Taxpayer to Social Investor A Conceptual Revolution
The transformation I'm proposing requires a shift in language and psychology: from "taxpayer" to social investor This isn't mere semantics it's a reconceptualization of the relationship between capital and civic responsibility that could fundamentally alter how we approach wealth redistribution
In the current paradigm, wealthy individuals view taxation as forced extraction the government takes their money with the implicit threat of legal consequences. But what if we reframed this entirely What if we positioned tax contributions as patient capital or impact investing terms that the business community already understands and, in many cases, embraces Patient capital is a concept from venture finance: money invested with the understanding that returns may take years to materialize but will ultimately prove worthwhile. Impact investing takes this further, seeking not just financial returns but measurable social and environmental benefits. Both concepts are increasingly popular among the wealthy, particularly younger generations who want their money to create change, not just accumulate
Here's where my proposal becomes genuinely innovative: by converting tax obligations into seed funding for startups that solve social problems, we transform the entire equation. The independent fund I'm proposing wouldn't just collect and redistribute money it would function as a social venture capital firm, investing in initiatives that address public problems while creating sustainable business models Consider waste management Currently, cities spend billions on garbage collection and disposal a pure cost center But what if tax revenues funded companies that could turn waste into profitable products Recycling technologies, waste-to-energy systems, innovative composting solutions these aren't fantasies. They're existing technologies that struggle for capital because the return timeline doesn't appeal to traditional investors. Yet with patient capital from tax revenues, these initiatives could become self-sustaining businesses that eventually stop requiring public funding entirely
The psychological shift is profound. Suddenly, the wealthy aren't having their money confiscated they're being required to invest it in community-beneficial ventures. And if these ventures succeed, there's potential for future tax relief or even returns. As I've often reflected
The genius of converting taxation into investment isn't that it makes the wealthy generous it makes generosity profitable, and profit socially responsible
The Independent Fund Learning from Sovereign Wealth Models
My proposal for an independent fund isn't unprecedented it's actually modeled on successful examples from around the world, though with crucial adaptations for domestic social problems rather than international investment Norway's Government Pension Fund Global and Singapore's Temasek Holdings represent two of the most successful sovereign wealth funds in history. Both manage state surpluses with remarkable efficiency, generating consistent returns while maintaining operational independence from direct governmental interference. The key to their success lies in professional management, clear mandates, and separation from day-to-day political pressures I'm proposing something similar but fundamentally different in purpose: an off-budget vehicle specifically designed to transform social problems into sustainable solutions. This fund would be separated from the general budget a critical distinction that prevents governments from raiding it to cover operational shortfalls or political pet projects.
The structure I envision would include several key features
First, professional management by individuals with demonstrated expertise in both social innovation and business development. We're not talking about political appointees or bureaucrats we need people who understand how to build sustainable ventures.
Second, clear performance metrics that measure both social impact and financial sustainability Every initiative funded must demonstrate progress toward solving the underlying problem while moving toward operational self-sufficiency.
Third, transparency mechanisms that allow public oversight without creating bureaucratic paralysis. Quarterly reports, independent audits, and public dashboards showing exactly where money goes and what results emerge
Fourth and this is crucial a profit-sharing mechanism that allows successful ventures to return value to the fund, creating a sustainable cycle of investment and return.
The beauty of this model is that it addresses the core complaint of tax resisters: lack of accountability and visible results. When wealthy individuals can see their tax contributions funding specific initiatives with measurable outcomes and potential returns, the psychological resistance diminishes dramatically
The Moral Hazard Commodifying Social Problems
I'd be intellectually dishonest if I didn't address the significant ethical concerns my proposal raises. Transforming government problems into business opportunities creates what economists call moral hazard perverse incentives that might perpetuate the very problems we're trying to solve The American private prison system offers a cautionary tale. When incarceration becomes profitable, companies have incentives to maintain high prisoner populations. They lobby for harsher sentencing, resist rehabilitation programs, and generally work to ensure a steady supply of inmates. This is the dark side of converting social problems into business models the solution provider benefits from the problem's persistence I won't pretend this concern is trivial. It represents the single greatest risk in my proposed model. However, I believe this risk can be managed through proper structural design, specifically through rigorous social performance indicators that make profit conditional on actually solving problems rather than merely managing them.
Here's how this would work in practice: any venture funded through the independent fund would face strict KPIs measured by independent evaluators. For a housing initiative, success wouldn't be measured by units managed but by people permanently housed and independent. For an education program, results would be measured by long-term employment outcomes, not just attendance numbers. For healthcare initiatives, the metric would be health improvements and reduced long-term costs, not services provided Moreover, contracts would include sunset provisions automatic termination if problems aren't being solved within specified timeframes. The goal is always to make the intervention unnecessary, not to create permanent dependencies.
I want to be clear about my position
Converting social problems into business opportunities is morally acceptable only when profit derives from solution, not perpetuation. The moment we incentivize the maintenance of suffering, we've abandoned both ethics and effectiveness
This ethical framework must be non-negotiable. Any deviation any hint that funded ventures are profiting from problem persistence rather than problem solution should trigger immediate intervention and restructuring.
The Political Paradox Socialist Ends Through Market Means
This brings me to what might be the most intellectually challenging aspect of my proposal: its apparent ideological contradiction. Zohran Mamdani comes from the Democratic Socialists of America tradition, which typically emphasizes direct government provision of services and skepticism toward market-based solutions. Yet I'm proposing what might be called market socialism using capitalist mechanisms to achieve socialist objectives
I'm aware this puts me at odds with some progressive orthodoxy. Traditional leftist thinking treats markets and social justice as fundamentally opposed forces capitalism creates inequality, so socialism must replace market mechanisms with state planning and provision. I respect this tradition and understand its historical logic. The failures of unregulated capitalism are real and devastating But I've come to believe this binary thinking is outdated and counterproductive. Markets are tools, not ideologies. They're remarkably efficient at certain tasks resource allocation, innovation incentives, identifying consumer preferences while terrible at others, like ensuring basic human dignity or preventing environmental destruction. The question shouldn't be "markets or government" but rather which tool for which task
Despite my support for Mamdani, I believe traditional socialism risks driving capital away from New York. We've seen this pattern repeatedly: aggressive taxation without clear value propositions causes wealth migration. California experiences this. European countries have grappled with it. The wealthy are mobile, and while I don't think we should cater to their preferences, I do think we need to acknowledge economic reality The compromise I'm proposing what we might call pragmatic market socialism acknowledges that capital flight is a genuine risk while refusing to abandon progressive objectives. By making wealthy individuals social investors rather than mere taxpayers, we give them reasons to stay and engage. By channeling their contributions into sustainable business models, we create long-term solutions that don't require permanent wealth extraction This isn't capitulation to wealthy interests it's strategic realism. I want to see progressive policies succeed, which means designing them to survive contact with economic reality. Pure ideological approaches often feel satisfying but frequently fail to produce lasting change. I'm more interested in pragmatic solutions that actually work than in ideological purity that sounds good but collapses under implementation pressure.
Practical Applications: From Theory to Implementation
Let me get concrete about what this would actually look like in practice, because abstract theory only matters if it can be operationalized effectively.
Consider affordable housing, one of New York's most pressing challenges. Currently, the city spends enormous sums on housing assistance, homeless shelters, and various housing programs all pure expenditures that solve immediate needs but don't address underlying supply problems. Under my model, the independent fund would invest in housing social enterprises organizations that build and manage affordable units while developing sustainable revenue models through creative approaches like mixed-income developments, shared equity models, or innovative construction techniques that reduce costs One example: modular housing construction can reduce building costs by 20-40% compared to traditional methods. The technology exists and works well, but traditional developers don't adopt it because they're optimized for different metrics. A tax-funded housing enterprise could embrace these innovations, dramatically increasing affordable housing supply while developing expertise that could eventually be licensed to private developers creating a revenue stream that reduces long-term public funding needs.
Or consider public transportation. Instead of perpetual subsidies, imagine transit-oriented development ventures that capture land value increases created by new transit infrastructure. When a new subway line increases surrounding property values, why should private landowners capture all that value? A publicly-funded development corporation could build around transit stations, with the profits funding transit operations creating a virtuous cycle where better transit increases its own funding base Healthcare offers similar opportunities. Community health centers struggle with funding despite providing cost-effective primary care that reduces expensive emergency room usage. Tax-funded health enterprises could scale successful community health models while developing revenue streams through preventive care contracts with employers or insurance companies moving toward sustainability while expanding accessb The common thread is this: identify public problems that have potential business model solutions, provide patient capital to develop those solutions, and structure incentives to ensure profit derives from problem-solving rather than problem perpetuation. This isn't about privatizing public services it's about creating hybrid models that combine public mission with business sustainability
The Revenue Question How Much and From Whom
I haven't yet addressed the specific numbers, which are crucial for assessing feasibility. How much additional revenue would Mamdani's progressive taxation generate, and how much should flow to this independent fund While I don't have access to Mamdani's specific tax proposals, progressive taxation in New York City could potentially generate hundreds of millions to low billions in additional annual revenue, depending on rate structures and brackets. My proposal to allocate approximately 1% of profits to sustainable business model development might seem modest, but we need to understand this correctly
I'm not suggesting only 1% of tax revenue goes to the fund I'm proposing that ventures receiving funding be allowed to retain around 1% of profits they generate, creating incentives for efficiency and success. The bulk of tax revenues would still fund traditional government operations, but the portion directed to this independent fund I'd suggest starting with 10-15% of new progressive tax revenues would operate under different rules encouraging sustainability and innovation This distinction matters enormously. If successful ventures can retain modest profit shares, they have incentives to actually become profitable rather than remaining permanent subsidy recipients. This profit retention mechanism transforms psychology from "how can we justify continued funding" to "how can we succeed well enough to keep our earnings" a subtle but powerful shift For the wealthy paying these taxes, the value proposition becomes clearer: their increased tax burden isn't simply disappearing into general operations a substantial portion is funding ventures that might eventually reduce future tax needs while addressing genuine community problems. It's not pure altruism, but it's also not pure extraction.
Structural Safeguards Preventing Corruption and Capture
No discussion of government-managed investment funds would be complete without addressing corruption risks. History offers countless examples of well-intentioned public funds becoming vehicles for political patronage, crony capitalism, or outright theft. How do we prevent this First, absolute transparency with real-time public access to all fund decisions, investments, and outcomes. Every dollar allocated, every venture funded, every performance metric all publicly available and easily searchable. Sunlight remains the best disinfectant
Second, independent oversight boards with meaningful power, not just advisory roles. These boards should include representatives from business, non-profit, academic, and community sectors, with term limits and conflict-of-interest provisions strictly enforced.
Third, competitive selection processes for funded ventures. No direct awards, no insider deals every opportunity should be openly competed with clear criteria and public evaluation processes.
Fourth, regular independent audits by external firms with results made public and discussed in open forums. Not just financial audits but performance audits measuring social impact against stated objectives
Fifth, whistleblower protections and incentives for anyone detecting fraud or mismanagement. Make it safer and more rewarding to report problems than to stay silent
These aren't just nice-to-have features they're essential infrastructure without which the entire concept becomes vulnerable to the exact problems that make people distrust government in the first place
Beyond the Illusion
I began this article by calling our current situation an illusion economy a system where taxes create the appearance of addressing problems without actually solving them. This illusion satisfies no one. Progressives see continued suffering despite enormous public spending. Conservatives see waste and inefficiency justifying their anti-tax stance. The wealthy feel exploited by a system that takes their money without producing visible results. The poor remain underserved by programs that promise much and deliver little.
My proposal isn't a perfect solution no such thing exists in complex systems like modern urban governance. But it offers a path beyond the current impasse by changing fundamental assumptions about what taxation is and how it should work By converting taxpayers into social investors, we address the psychological resistance that makes progressive taxation politically fragile. By creating independent funds with professional management and clear mandates, we bypass much of the bureaucratic inefficiency that plagues traditional government programs. By focusing on sustainable business models rather than perpetual subsidies, we work toward long-term solutions rather than indefinite dependencies. By establishing rigorous performance metrics and ethical safeguards, we address moral hazard concerns while maintaining public accountability.
Will this approach satisfy everyone? Of course not. Pure ideologues on both left and right will find aspects to criticize it's too market-oriented for some, too interventionist for others. But I'm not interested in ideological purity. I'm interested in pragmatic solutions that might actually work in the messy reality of democratic governance and mixed economies Zohran Mamdani's victory represents an opportunity for New York to try something genuinely innovative. Progressive taxation isn't new, but combining it with structured investment in sustainable social enterprises could create a model that other cities might emulate. The question is whether we have the political courage to experiment with hybrid approaches that don't fit neatly into established ideological categories
I'll close with this reflection
True progress isn't found in ideological purity but in practical solutions that acknowledge human nature including the wealthy's desire to see their contributions produce visible results, and the poor's need for solutions that actually address their circumstances rather than merely documenting them
The illusion economy thrives when we pretend simple answers exist to complex problems. It collapses when we build systems that align incentives, measure results, and adjust based on outcomes rather than intentions. Let's build that economy instead one where taxes aren't phantom solutions but genuine investments in our collective future The path forward requires acknowledging that both progressives and business advocates have legitimate insights. Markets can serve social goals when properly structured. Government can enable innovation when freed from bureaucratic constraints. Wealthy individuals can contribute to social good when given reasons beyond coercion. And sustainable solutions come from aligning various interests rather than pretending conflicts don't exist.
This is the economy beyond illusion one where we measure success not by how much we spend or how loudly we proclaim our values, but by whether people's lives actually improve and communities genuinely thrive. That's the economy I want to help build, and that's the economy I believe Mamdani's progressive taxation could help create—if we're wise enough to structure it properly