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There's a logic to taxing the rich at a higher rate than lower or middle income people that many here are unaware of.
In a previous post, I stated that the propensity to save is greater among the wealthy than it is among the poor and middle income groups. This has considerable important in formulating economic policy.
If I'm barely getting by and you raise my taxes what is going to happen? I'll be spending less money at Walmart, the gas station, and on any discretionary items. This means that every additional dollar I am forced to pay in taxes is one less dollar that will help create jobs and keep people employed.
The same is not necessarily true at all when we raise tax rates on the rich. Why? Because the rich have a higher propensity to save their income. Since they don't need all the money they make to get by, they take a considerable portion of their money and save it. This money is not being spent and does not create and maintain jobs. If this money is taken from the rich through higher taxes, its going to have very little effect in terms of reducing job creation.
There is solid economic research that proves my point that the rich save a higher percentage of their income than the rest of us do.
I get really tired of those who try to make a "moral issue" out of higher tax rates on the wealthy. We don't tax the wealthy to redistribute income. We tax the wealthy to pay for necessary government expenditures that we as a nation have agreed on based on the people we have elected to Congress and the laws that they have passed. Taxes are simply a means of funding those programs.
The truth is that raising tax rates for the wealthiest 2% of people in this country is barely going to affect most of them. A change in tax rates from 36% to 39% is not going to be the ruination of mankind.
Its also pure drivel to suggest that government spending can't be contained in some way. We elect Congress. We can defeat those members who refuse to vote for appropriate cuts in government spending.
Taxing the wealthy just a bit more is one of several strategies we need to pursue if we are going to do something about the budget deficit we've got. Its that simple.
I probably already posted this, but despite any repeal of the Bush tax cuts for the wealthiest households, they are not going to be paying anywhere near 30 % or 34 % anyway.
In 2010 the top 1 to 5 % of households paid an average of 17 % in federal income taxes.
The top 400 wealthiest households who earned an average of $202 million a year paid a federal tax rate of 19.9 % in 2009. 110 of those 400 families paid a mere 15 % in federal taxes and 6 of those families paid no federal income tax whatsoever.
The one big thing about increasing the tax on the rich, is that it means that they just cut down on buying stuff. That "stuff" is what makes jobs for a lot of people. Cars, furniture, houses, swimming pools, clothes, etc. Its the kind of things that people like me make last and last because we can't afford to buy more. They even do things like redocorating and new paint on the walls. It's been 20 years since we bought paint. What would happen to all the painters if everyone did as we do?
One good example is what happened when there was a tax increase on Yachts. Rich folk just quit buying the things so often. Boat builders all over went under. They were not needed.
Let's give a cheer for the Rich! They make it possible for the rest of us to earn a salary. If they have to pay more taxes, There will be more without jobs... more people be eligible for government handouts. As long as the Rich have money, they will spend it.
However, there are too many dodges for the rich. Off shore accounts, certain tax exemptions, things like that. Tax should be fair. It shouldn't favor the Rich.
This is erroneous as when you have 1 rich person they will only buy so much and it adds relatively little purchases to the economy. What builds markets is when the middle class gets and extra $200 in their pocket, they spend it which decreases inventories. the drop in inventories will ramp up production, and hiring. The purchase of one million dollar super car will do little for increasing jobs.
This is why trickle down economics simply doesn't work.
Taxation has evolved strongly over time to a behavior modification program. Because most people respond to incentives and disincentives, taxation is used to get us to do something - or reward us for doing things the government deems good. It of course is used for business also.
A radically simplified tax system focused on revenue instead of changing behavior would stop the distortion of economics. The government has decided that having children deserves a reward. Same with buying a house. Drilling for oil. Giving to charity.
And how much of our time is wasted responding to these incentives and disincentives? How much of government is tied to managing this mess?
Tax everyone's income above the bottom 20%. I'm OK with a small progression of tax rates. No deductions. Stop trying to equalize the cost of living between California and Arkansas. No deductions for state taxes. How much of California's tax policy relies on the fact that California income taxes can be deducted from the federal returns?
Phase this all in over ten years so those addicted to deductions has some chance to adjust.
Oh - and the federal government should start with a 10% across the board spending cut - every department. No one gets to argue "my funds are more important than yours." And no senator or congressman gets to plead his case.
This is a very eloquent post that explains what has gone awry with the present system. As taxation has been disconnected from its function of raising revenue to become more of a social engineering process, it loses its validity in terms of determining how much we should be spending. So we get runaway deficits, while the President and Senate no longer feel any responsibility to approve or even submit a budget. Now even big spenders realize the system is completely broken, but they're addicted to spending, and the only remedy they can imagine is hitting up the rich for another fix.
Last edited by Glenfield; 12-06-2012 at 10:21 AM..
This is erroneous as when you have 1 rich person they will only buy so much and it adds relatively little purchases to the economy. What builds markets is when the middle class gets and extra $200 in their pocket, they spend it which decreases inventories. the drop in inventories will ramp up production, and hiring. The purchase of one million dollar super car will do little for increasing jobs.
This is why trickle down economics simply doesn't work.
Although I agree the purchase of a single supercar doesn't do much, consider this:
The Tax Foundation data says:
67.517M tax returns are in the bottom 50%
Total AGI for the bottom 50% is 944B
AGI per return is $13,981 per return
Income tax per return is $326
Reducing taxes by $200 for each of these returns would put a total of $13.5B into the economy assuming they don't save it. So a $13B stimulus.
I don't think that is much. Economically I don't see much justification for reducing their income tax burden even lower than it is already. But it "feels good" to some policy makers to do that.
This is a very eloquent post that explains what has gone awry with the present system. As taxation has been disconnected from its function of raising revenue to become more of a social engineering process, it loses its validity in terms of determining how much we should be spending. So we get runaway deficits, while the President and Senate no longer feel any responsibility to approve or even submit a budget. Now even big spenders realize the system is completely broken, but they're addicted to spending, and the only remedy they can imagine is hitting up the rich for another fix.
Yup... Been social engineered over the past 30 to cut the tax of the well off.
My departed Mother, who was an expert on the income tax, basically agreed with you guys. Her bag was simply remove all deductions. She also wanted to pay everybody a stipend of say $10,000 a head and then set tax rates to recover it. Her view was that it would remove the entire infrastructure of the welfare system at a huge savings.
She said all such things as mortgage or other deductions should be done by a direct payment. That is so that there would be an account showing the actual cost of each such payment.
She would disagree that it would have any impact on progression...that is a different issue. It was cleaning up the system and simplifying it while saving some money on the overhead cost and providing transparency.
Yup... Been social engineered over the past 30 to cut the tax of the well off.
My departed Mother, who was an expert on the income tax, basically agreed with you guys. Her bag was simply remove all deductions. She also wanted to pay everybody a stipend of say $10,000 a head and then set tax rates to recover it. Her view was that it would remove the entire infrastructure of the welfare system at a huge savings.
She said all such things as mortgage or other deductions should be done by a direct payment. That is so that there would be an account showing the actual cost of each such payment.
She would disagree that it would have any impact on progression...that is a different issue. It was cleaning up the system and simplifying it while saving some money on the overhead cost and providing transparency.
Your mom was a very smart lady.
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