“Tax the Rich!” they cried

MoneyBags.jpgWhen it comes to questions of how we’re going to pay for health care reform, clean air initiatives and everything else up to and including free ponies for everyone, many self-styled pundits have been crying out that we should tax the poncy, bourgeoisie bastards who hoard all the cash. “The rich should pay their fair share!” That’s the cry we hear.

You may want to read the following and then ask yourself exactly what their “fair share” really is.

Tax Burden of Top 1% Now Exceeds That of Bottom 95%

Newly released data from the IRS clearly debunks the conventional Beltway rhetoric that the “rich” are not paying their fair share of taxes.

Indeed, the IRS data shows that in 2007—the most recent data available—the top 1 percent of taxpayers paid 40.4 percent of the total income taxes collected by the federal government. This is the highest percentage in modern history. By contrast, the top 1 percent paid 24.8 percent of the income tax burden in 1987, the year following the 1986 tax reform act.

Remarkably, the share of the tax burden borne by the top 1 percent now exceeds the share paid by the bottom 95 percent of taxpayers combined. In 2007, the bottom 95 percent paid 39.4 percent of the income tax burden. This is down from the 58 percent of the total income tax burden they paid twenty years ago.

But that won’t slow down some folks. As long as there is anyone who is perceived as one of “the haves” by the rest of the “have nots,” the calls to have them foot the bill for everything will continue.

And this is the way that empires fall, sooner or later. You rarely go down to a hostile outside force. You tear yourself down from within.

59 Comments

  1. ThurmanHart,

    That is one of the best-written, smartest arguments against the “soak the rich” mentality that I have ever seen. Thank you.

  2. I'm surprised the return of the tired, useless “arguments” for progressive taxation other than the utilitarian and amoral one isn't accompanied once more by widespread misuse of that sappily-misused word, “fairness” [rolling eyes].

    I also roll eyes at those who deny the reality that increased taxes are a disincentive to what is being taxed, such as work, as well as the case taken logically and realistically out of context, that those who are at income or wealth levels near or above the threshold of practical independence are representative of the public as a whole, as if everyone can afford to pay additional taxes for the hell of it, or as a game.

    And, of course then comes another real world defect in the lefty-fools' dreams, that “the rich” are nowhere numerous enough to constitute a tax base that will support all the dreams these same fools have for the government to spend money on. Which is why, as I've already noted before, even lib Dems like Obama during his campaign have revised downward the threshold beneath which people won't face increased taxes (why not, if they aren't bad?), the ever-revised-downward threshold of what constitutes “rich.”

    * * *

    J. West: The ideal would be to weigh voting not only on one's taxes paid (especially with progressive taxation of wealth or income, which in practice and reality is unjust and envy-based), but also (multiplied by) a gauge of competence, such as a score on a citizenship test or test on relevent issues of the day on which government is imminently acting (during the next election cycle), or a worthwhile surrogate such as an IQ obtained from a suitable test. Short of that, weighting according to taxes (compulsorily) paid is OK.

    * * *

    “as if letting people keep what they earn were a gift from the government”

    Such morally inverted (perverse) views are common, and unfortunately, aren't limited to Washington and to more-retarded and in-decline state governments in this country. Yes, like children receiving an allowance or a periodic ration of candy from government, their surrogate parent…

  3. ThurmanHart: 'Marginal tax rates have been much higher than they are today – and yet not a single person ever said, “Oh, I don't want to make a hundred bajillions of dollars because I might have to pay ninety bajillions in taxes and only have to live on ten bajillions.”'

    Of course not. But there's an opportunity cost to anything we do. It's not a choice between making more money and doing nothing. It might be, for example, a choice between starting a business for the purpose of making more money (and incidentally also providing some people with employment) or having more time to pursue some non-monetary hobbies. If someone is making this decision and is already undecided, a higher marginal tax rate might be enough to discourage them from making the decision that would make them more money, as well as provide employment. That's not to say the decision-maker would make the wrong decision, but they would be more likely to choose the decision that does not help the economy grow.

    So, of course increasing the marginal tax rate does not discourage a middle-class person from seeking to be rich. Nor does it encourage a rich person to give up his wealth to avoid the taxes. As should be expected, raising the marginal tax rates takes its effect at the margins, when people are choosing between more wealth and more of something else that is worth something to them.

    “Investing doesn't cause economic growth”

    Tell that to any small business owner who has ever had to present a business plan to a potential investor.

    “Finally, throughout history, much more evil has been done by neglecting the poor than by taxing the rich.”

    This is the argument for a progressive tax policy (I don't support a flat tax, by the way). But, you agree (based on your previous comments) that we shouldn't use this argument to increase taxes on the rich indefinitely. At some point, they are taxed enough. The question of what is “enough” is what is important, but is a difficult thing to debate since it is so subjective.

    I have spent most of my comments in the past few days pushing back on the conservative interpretation of these new IRS numbers on various blogs, but assuming we can raise taxes on the rich with no adverse economic consequences is equally wrong.

  4. Excellent comment, Adelinesdad.

    I think people of reasonable intelligence should all be able to agree that 100% taxation would be counterproductive to raising more revenue, and that if you start at 0% and then go up the revenue will in fact go up.

    The question is where the optimum range is, and figuring out when you have leeway to raise top brackets without deincentivizing investment and work so much that the increase is counterproductive. Lots of people on the left are arguing that return to Clintonian levels should still keep us in the range where we'll see increased total revenues, and that's probably true (although it's not as clear whether these changes will produce similar results in a deep recession as they did during an economic boom.)

    But regardless, it's been shown that even taxing the top 5% at 100% (if we could make that retroactive so that we don't have to account for changes in the decisions made by those top earners, and actually assume we can confiscate all of their earnings) won't pay for everything that Obama and the Dem Congress want. So, it's a dishonest discussion on both sides if lefties and moderate lefties keep talking about how the Clinton rates won't hurt anyone- because obviously those top rates will have to go much higher before you can even begin to address the current deficit spending.

  5. Dr. J writes:

    Interesting choice of phrasing, as if letting people keep what they earn were a gift from the government. I don't agree with that point of view, either on moral or practical grounds.

    Economics is built on the idea of people operating in their economic self-interest. it doesn't matter if you like it or not, being rich is its own reward, and the government doesn't need to do anything to make people want to be rich. Nor does it have to do anything to make people not want to be poor. You don't believe that?

    Sorry, I couldn't make any sense of that at all. Companies don't spend investors' capital developing products and bringing them to market? People can buy more than they could 100 or 1000 years ago because…we just feel like paying them more these days? Retirees' spending doesn't count in the economy? Could you take another run at that paragraph?

    1) On an ongoing basis, no, companies don't “spend investors' capital developing products and bringing them to the market.” Like the rest of their budget, R&D generally is taken out of profits from selling existing products. Most investors, on the other hand, purchase company stocks – most of which are not actually bought directly from the company anyway. There can be some notable exceptions, such as Initial Public Offerings – but, even then, no more than about five percent goes to R&D, on average.
    2) People get paid more today largely because of union activism and government regulation. If the minimum wage had been adjusted for inflation, it would be over ten dollars an hour now. Unions forced employers, even non-union employers, actually compete for workers, resulting in higher wages. As unions have become a smaller part of our workforce – and as government regulations have been repealed – inflation-adjusted wages have stalled and fallen behind inflation.
    3) Any investment I hold in my retirement account is not counted today as spending ability. It might allow me to spend more in twenty or thirty years when I retire, but that is moot when discussing today's economy.

    I really hope you can follow that

  6. Economics is built on the idea of people operating in their economic self-interest. it doesn't matter if you like it or not, being rich is its own reward, and the government doesn't need to do anything to make people want to be rich. Nor does it have to do anything to make people not want to be poor.

    The govt doesn't have to do anything to make people want to be rich, but it does have to show that it's not going to prevent people from becoming rich even when they make the decisions that would lead to them acquiring more wealth- and what the govt needs to do to assure that is to not operate under the assumption that the wealth they create belongs first to the govt until the govt decides how much to return or allow the earner to keep.

    Any investment I hold in my retirement account is not counted today as spending ability. It might allow me to spend more in twenty or thirty years when I retire, but that is moot when discussing today's economy.

    Where you as an individual get the money you spend is a moot point, sure, but what Dr J challenged you on is why you'd think that what retirees spend is moot. They make up a big, and growing, segment of the population, so the return on their investments certainly is relevant.

  7. Being rich is its own reward, and the government doesn't need to do anything to make people want to be rich. Nor does it have to do anything to make people not want to be poor. You don't believe that?

    I'm struggling with your phrasing. You're using a triple negative about what the government can stand back and let happen, in order to justify aggressive government intervention.

    The question isn't what people will do on their own, it's what they'll do when the government is confiscating their earnings, or is paying them for doing nothing. Marx figured they'd keep working hard, to better themselves, to help their society, and for the satisfaction of an honest day's work. But the societies that have tried Marxism have found that the satisfaction of an honest day's work isn't enough to keep the economy afloat.

    People get paid more today largely because of union activism and government regulation. Unions forced employers, even non-union employers, actually compete for workers, resulting in higher wages.

    So all a group of illiterate farmers living on $2 a day has to do is get organized and demand more money from the local shopkeeper? Trouble is, the shopkeeper doesn't have the money either, and he can't simply raise his prices because none of his customers could pay. The economy as a whole simply isn't productive enough to improve people's standards of living. What the farmers need is investments that will improve their productivity–better education, better farm equipment, and so on.

  8. Dr. J wrote:

    I'm struggling with your phrasing. You're using a triple negative about what the government can stand back and let happen, in order to justify aggressive government intervention.

    There's no double negative there, much less a triple negative. What you're struggling with is your ideology. It doesn't fit with reality. Being rich doesn't need to be incentivized. There are no incentives needed to make people want to escape poverty. This is otherwise known as “self-interest” and is the basis of all economic principles.

    The question isn't what people will do on their own, it's what they'll do when the government is confiscating their earnings or paying them for doing nothing. Marx figured they'd keep working hard, to better themselves, to help their society, and for the satisfaction of an honest day's work. But the societies that have tried Marxism have found that the satisfaction of an honest day's work isn't enough to keep the economy afloat.

    Who cares what Marx said? It has nothing at all to do with our modern economy.

    So all a group of illiterate farmers living on $2 a day has to do is organize and demand more money from the local shopkeeper? Trouble is, the shopkeeper doesn't have the money either, and he can't simply raise his prices because none of his customers could pay. The economy as a whole simply isn't productive enough to improve people's standards of living. What the farmers need is investments that will improve their productivity–better education, better farm equipment, and so on.

    Show me where illiterate farmers exist in America. Then show me where they deal directly with a local shopkeeper.

    What I have witnessed is cotton farmers in Texas forming cooperatives (otherwise known as “organizing”) so they could demand a better price from the textile mills. I've also seen grain farmers (wheat, corn, and rice) do the same thing. The best tractor in the world doesn't do you a bit of good when your buyer has the market cornered.

  9. There's no double negative there, much less a triple negative.

    Sure there is: “Nor does it have to do anything to make people not want to be poor.” And you didn't address my point. If you're advocating taxing the rich aggressively, you're advocating an active disincentive for them to work hard. There are no incentives on the table. Unless, of course, you consider forbearing from seizing their assets a gift you bestow.

    Show me where illiterate farmers exist in America.

    100 or 1000 years ago we had plenty, and there are still plenty in other parts of the world. What has changed and is continuing to change standards of living for all of us is investment and improvements in productivity, not compulsory distribution of wealth. I'll totally grant that organizing can help small groups of people squeeze more out of a corner of the economy, but that's not what drives big-picture economic growth.

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