Forget Flat Taxes; Focus On The 5 Percent Solution

While the national debate on taxes is currently dominated by the latest help-the-rich flat tax concoctions, the 5 percent surtax proposal on millionaire and billionaire incomes has faded into the background. This is very sad because this simple, easy to understand, highly popular approach toward meeting budgetary necessities is probably the most sensible thing to come out of Washington in years — maybe decades.

So much conservative effort has been directed toward misinforming about this proposal, it’s worth explaining some basic facts about it. This surtax would not be levied on existing wealth. It would only be levied on incomes in excess of a million dollars a year. If your annual income were exactly that amount, you wouldn’t pay this surtax. If you made a million and one dollars a year, the tax would only be levied on one dollar, and would total a nickel.

A $50,000 surtax level would only by reached by people making two million a year. And while 50K isn’t chump change, even for someone at this income level, it’s very hard to see how this surtax would in any way diminish their lifestyles. What could they not afford to buy if hit with this additional levy? The answer is virtually nothing, for the simple reason that even if this surtax means they have less cash in pocket, the ability of anyone with an income of $2 million or more to borrow at very favorable rates would still let them afford almost anything.

The next thing to understand about this surtax is that it would not, as conservatives continue to insist endlessly, affect “small businesspeople.” Anyone is free, of course, to define a small businessperson any way they choose. You could say Chrysler is a small business because it is smaller than Ford, and the CEO of the former is therefore a small businessperson. But honestly, folks…

Is there a single small business owner of an auto repair shop, a family restaurant, a dry cleaning establishment, who brings home more than a million a year in net income (this surtax would be levied on net incomes). In the real world, is there any small business owner in any field who is so stupid that he or she can’t figure out how to pay less income taxes by turning as much income as possible into tax reducing expenses, or taking perfectly legal income reducing deductions? Only in conservative think tank land, and its outposts in congress and the media, do all those small business millionaires exist.

The other endlessly repeated conservative rationale for opposing this surtax is that it would hurt “job creators” who would stop creating needed jobs. Whenever I run across someone who actually buys this twaddle, I always think to myself: How many times do some people have to whacked on the side of the head before they figure out that head whacks don’t cure headaches? How many times can two sets of numbers, one showing the increased wealth flowing to the richest Americans, the other showing the high levels of persistent and increasing unemployment and underemployment, have to be laid side by side before it becomes clear to all that leaving rich people more after tax-income doesn’t generate a slew of new jobs?

We don’t have to worry about a shortage of available capital to generate new jobs if we surtax millionaires and billionaires. Needed capital is currently abundant and will remain so. The basic economic problem today is not lack of capital. It’s that there aren’t enough consumers with money to spend.

So here’s the skinny on a 5 percent surtax on the very rich. More revenue flowing into government coffers from this surtax would mean fewer reductions in government spending so more teachers, cops, firemen, et. al could remain employed and spending. There would also be more cash in the hands of Medicare and Medicaid recipients, enhancing their spending power.

A 5 percent surtax on incomes of the very rich is a very good thing for everyone else. This isn’t class warfare. It’s sound fiscal policy. It’s economic common sense.

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