Should We Soak the Rich?
The Goose That Laid the Golden Eggs is one of the most famous of Aesop’s fables. The cottager and his wife kill the goose to get the great lump of gold they think is inside. However, they find it is no different than any other goose. Their greed deprived them of a future steady income. So it is with the notion that we must tax the rich to pay for our out-of-control spending.
Raising tax rates on the rich will kill the golden goose. Increasing tax rates will discourage investment, cause total tax revenues to fall, and will increase, not decrease, the deficit. Here are three reasons why:
- More progressive tax rates are not fair
- We end up taxing people who are not really rich
- History has proven that increasing tax rates causes revenues to fall
More progressive tax rates are not fair
According to the Patriot Update1 , “The top 1% of Americans pay 40% of all federal income taxes, and the top 10% pays as much as 70% in total. Conversely, the bottom 40% pays close to nothing.” How are the rich not paying their “fair share”? Why should we tax them more? Answer: because we can. They only have 1% of the votes.
The United States already soaks the rich, more so than any other developed country. As the following Newsmax magazine chart2 shows , the tax burden of our 1% is higher than every other developed nation. The 1% in the United States supply 45.1% of all taxes, whereas in socialistic Sweden, the 1% only supply 26.7% How are the rich in our country not paying their fair share?
As the Newsmax article explains, the rich should not be targeted for higher taxes. It’s not just the rich who are getting richer in the U.S. The poor are getting richer too. Plus, the rich aren’t all born rich, and don’t all stay rich. Of the 400 richest people listed in the 2007 issue of Forbes magazine, only 32 were included when the list began in 1982. “Only 18% inherited their whole fortune, while about 70%—people like Amazon founder Jeff Bezos and Dell computer founder Michael Dell—amassed fortunes by giving the rest of us products we want.” 3
We end up taxing people who are not really rich
The Democrats propose raising taxes on families making $250,000 a year and up. As Thomas Sowell points out:
Rich means having a lot of wealth. But income taxes don’t touch wealth. No wonder some billionaires are saying it’s OK to raise income taxes. They would still be billionaires if taxes took 100% of their current income.
What those who are arguing against “tax cuts for the rich” are promoting is raising the tax rates on families making $250,000 a year and up. A husband and wife making $125,000 a year each are not rich. If they have a kid going to one of the many colleges charging $30,000 a year (in after-tax money) for tuition alone, they are not likely to feel anywhere close to being rich. 4
History has proven that increasing tax rates causes revenues to fall
As Thomas Sowell points out, in 1921 the tax rate on people in the top income bracket was 73%! Here was the consequence of those high tax rates, “The number of people with taxable incomes of $300,000 a year and up—equivalent to far more than a million dollars in today’s money—declined from more than a thousand people in 1916 to less than three hundred in 1921.” 5 What happened? Did all those rich people go broke? The answer was of course not. They merely took the money they had invested in the economy (in businesses creating jobs) and invested it in tax-exempt securities, such as municipal bonds (in government creating red tape).
As the late Chuck Colson explains, the government’s role is not to reduce income inequality through progessive tax rates. “At the most basic level, government’s job is to preserve order, do justice, and restrain evil.”6 Equality in the U.S. means legal and political equality. Each person has one vote and the rules are the same for everybody, no matter how much they make. The incentive behind taxing the rich is really no more than class envy.
- Nathaniel Davidson, Taxing the “rich”? No, ruining America! (Patriot Update, December 7, 2010) Available at: http://patriotupdate.com/oldsite/exclusives/read/288/Taxing-the-rich?-No-ruining-America(May 1, 2012)
- Stephen Moore, The Lie Behind Obama’s Class Warfare (Newmax, May, 2012), 56.
- Ibid, 57.
- As cited in Nathaniel Davidson, Taxing the “Rich” – Part 2 (Patriot Update, December 21, 2010) Available at: http://patriotupdate.com/articles/taxing-the-rich-part-2(May 1, 2012)
- Thomas Sowell, Back to the Future: Part III (Townhall, September 15, 2011) Available at: http://townhall.com/columnists/thomassowell/2011/09/15/back_to_the_future_part_iii/page/full/(May 1, 2012)
- Chuck Colson, Equality and Envy: The Proper Role of Government (BreakPoint, November 15, 2011) Available at: http://www.breakpoint.org/bpcommentaries/entry/13/18229(May 1, 2012)