The government is on a desperate search to put as many shekels as it can in its coffer. Is raising taxes on the rich the answer?
Most people don’t think so. AP conducted a poll to find out what the best solution was for the deficit problem. 62% think the government should cut spending. Only 20% think the solution is tax hikes. Also, in a recent Investor’s Business Daily poll, 92% of Americans think it’s important to cut government spending. If we want to put something away for our future or start saving money for a house, we have to make changes to our spending. Shouldn’t the government do the same? Many of us think they should.
But “we” might be wrong. Maybe “we” just don’t understand. Let’s take a look at the numbers to determine what the best course of action might be.
Here’s a graph that shows the top 1% pay almost 40% of all the taxes.
So what? They can afford it. Maybe they can afford to pay some more. They’re good at creating wealth. Let them share some of it. Let’s see if an increase in income tax on the wealthiest Americans would solve our problems. Since the most recent data we have is for tax year 2008, we have to look back to get some answers.
Let’s assume that the top tax rate in 2008 was 50%. According to the IBD, that would have added $114 billion to the U.S. Treasury. Assuming that didn’t put the brakes on business growth, entrepreneurial ideas and hiring (a fantasy), that $114 billion isn’t enough to solve trillion dollar deficits.
Sure, that extra $114 billion would be a nice down payment and a help, but it’s not enough. And of course there’s always the little issue of what such a tax rate would do to the economy, which some economists argue would be counterproductive. We’re a pretty mobile economy. It wouldn’t be too tough for the wealthy to pick up their laptops and run their business offshore.
So why do some of us point our fingers at the “rich” when it comes time to bail out the system? Because “they” have more money they we do. I heard a story on the radio the other day. A speaker held town hall meetings with Fox News listeners – a relatively fiscally conservative group. You would have expected these people to be anti-tax hikes, but they weren’t. The speaker asked the group if people earning more than $500,000 should pay higher income taxes. Over 90% of these people supported increasing the income tax rates on people earning over $500,000. Why? Because the people in the audience didn’t earn $500,000.
Lots of people today think they benefit by raising taxes on the rich. That’s because the government generates revenue and distributes it to them. They don’t think it costs them anything and they get something out of it. Taxes are the ultimate free lunch for many people. Why wouldn’t they be for it? But there are two problems with this.
First, the people taking from the system are relying on the wealthiest. At some point, those wealthy people won’t have the resources to prop the system up. Then what happens? Then who is going to provide the jobs and tax revenues? Nobody. And at that point, those in the lowest segment of our economy will be left in a much worse situation.
I’m not asking you to throw a fund raiser for your local millionaire. I’m simply pointing out that if you’re interesting in reducing our budget deficit, raising taxes on the wealthy won’t solve your problem.