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Don Roach: 5 Reasons Taxing the Rich is Stupid

Wednesday, May 09, 2012

 

All over the place, people are writing about how we need to tax the rich. A few months ago I wrote about how the Buffett rule was a bad idea. Now, I’d like to give you five reasons why taxing the rich doesn’t solve our economic problems.

1. The concept of ‘taxing the rich’ creates class warfare

What’s the difference between me and Warren Buffett? We’re both Americans, both have one vote, but the amount in his bank account dwarfs mine. That’s a real difference but I’m also black and he’s not. That too is a real difference. But these are only differences that impact lives if we make them so. If I am not protected under the law in the same way Buffett is because of his race or money then I have an issue. Government should not protect one class of people more or less than another class or race of people.

The problem with the theory behind ‘taxing the rich’ is that it penalizes rich people for having money and it creates a class distinction between those that are and those that are not described as ‘rich’. This distinction allows politicians, especially those on the left, to say “this class of people isn’t paying their fair share. They need to pay more.” Out of one side of their mouth they are asking one class of people to take on more of the burden while excusing another class of people of the burden. In other words, it’s the rich people who are responsible for getting us out of this mess. What liberals miss, in my opinion, is that they are giving rich people more power by proposing to tax them more. It’s as if their tax dollars are more important than the rank and file. Yes, rich people pay more but they have a larger denominator.

What’s unfair and unsustainable is taxing rich people more simply because they have more. We’re all responsible for the economic well being and I don’t want rich people to have a greater say simply because they have more money. Tax them more and that’s where we’re headed.

2. Spending, spending, spending

Taxing the rich more than they are today will provide increased revenue for the government. Unfortunately taxing them more ignores our spending problems. As I explained in the Buffett article:

[…]any good businessman knows that you need to address expenditures or your revenue increased will be offset by increased spending. Obama and Bush before him haven’t demonstrated an ability to reduce government spending and that is the KEY issue facing our government.

If our economic dialogue continues down the road of taxing the rich then one day we will wake up and not have enough money to pay for the services that government provides. The money train will come to a halt and further taxing the rich will not help us at all. Therefore, before we talk about increasing revenue streams let’s talk about reducing spending, let’s talk about what we’re doing with the revenues we do receive, and let’s talk about reason number three.

3. Government is NOT the answer to all of our problems.

Ronald Reagan famously said “government is not the solution to our problem; government is the problem.” Too many of us believe that the problems within the market are for the government to solve and/or regulate. If we continue to rely upon government to solve our problems then our government will continue to bloat. That will lead to more revenue stream needs (e.g. taxes) and when does the cycle end? At some point the people need to say that enough’s enough and we need to decide what government should and should not provide. Taxing the rich puts a bandaid on the problem – if we say the problem is the government’s budget. It doesn’t solve the spending problem and more importantly it doesn’t answer the question of what government is responsible for and what we, the people, are.

4. Taxing the rich doesn’t reduce the power of lobbyists.

Huh? One of the major issues facing our government is the influence of lobbyists on both sides of the aisle on government. Be it the healthcare industry, the NRA, and countless others corporations spend millions and millions of dollars to influence legislators. How does taxing the rich impede their influence and enable our Congress to focus on the spending issues? It doesn’t. What it will do is create a new lobby, call it HTRP or Highly Taxed Rich People, who will exert their influence through lobbying efforts eventually. They will have just cause as they will be paying for a number of programs and government agencies. Think it isn’t possible? These rich folks want you to tax them more. What’s to stop them tomorrow from lobbying for something else? Tax them more equals more power for the rich. Not a good thing in my opinion.

5. Taxing the rich does not stimulate the economy.

What else can I say but taxing the rich doesn’t create a new job, open a new business, or add a cent into your paycheck. That’s one thing that Obama and others who want to increase taxes on the rich seem to be forgetting. The ultimate goal is to stimulate the economy so that unemployment rates decline and that average Americans are able to make a living sans government assistance. Taxing the rich doesn’t accomplish this goal and only serves to increase the size and scope of government. What we should be focusing on is stimulating the economy not worrying about if we have enough money to provide government services. A novel concept, I know.

Taxing the rich does not create long term solutions for our economy or our government. It’s a bad idea and we need to ask our political leaders for more innovative solutions.

Don Roach is a member of the RI Young Republicans. He can be reached at don@donroach.org.


 

 

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Comments:

Jeffrey Brown

Great points Don. You may want to do a sequel, maybe entitled "Taxing the Rich in Rhode Island, How Dumb is Dumb"

Peter Cassels

All of your comments except the first one make some sense, Don. The class warfare argument doesn't. The rich need to pay their fair share and right now they don't. It's as simple as that. Has nothing to do with class warfare.

Common Sense RI

Mr. Cassels, how do you define "fair share"? What isn't fair about everyone paying the same percentage of their income? Yes, we can talk all day long about different rates between ordinary income and capital gains and also about "loopholes" and there are valid arguments there on both sides, but most "tax the rich" types are just out to raise the rates in higher income brackets. In effect they want to transfer more money from the rich to the poor by treating the "rich" differently simply because they are rich. How is that not "class warfare"?

Peter Cassels

Common Sense, your point is a good one. I'd be happy if the government would eliminate the loopholes and other rules that favor the wealthy rather than increasing their tax rate. That would accomplish the same thing and place everyone on a level playing field.
But given the dysfunctional Congress, that's not likely to happen either.

Aaron Regunberg

Don, class warfare has always existed in this country. It's literally built into our system. Even Adam Smith was very clear in his "The Wealth of Nations" (if you haven't read it, you should) that capitalism by definition creates different class interests. If you're a capitalist, your fundamental interest is in maximizing your profits, which means reducing your labor costs, which means lowering wages as much as is possible (not a controversial statement). And obviously if you're a worker your interest is in trying to make enough to live a good life.

The major difference between the two is that the capitalist has an inherent, huge, and built-in advantage over the worker, in that the owner brings a whole enterprise to the table. If he can't find workers, so be it, he or she will be okay cause they are already capital-rich. But a worker only has his or her own labor to sell, and so the worker's choice is work or starve. The bargaining chips are clearly with the owner.

Add to that the political advantage that the rich have over the working class to get policies favorable to them--such as a tax code that can allow Mitt Romney to pay less in income taxes than a middle-class family--and you've got a system in which class warfare happens all the time, every day. It just always happens to those with less power.

Peter Cassels

Well said, Aaron!

Benjamin Algeo

"Add to that the political advantage that the rich have over the working class to get policies favorable to them--such as a tax code that can allow Mitt Romney to pay less in income taxes than a middle-class family"

Well said? It isn't even factually correct. Mitt Romney pays no income tax now because he doesn't have any earned "income." He does, however, pay capital gains taxes (like Warren Buffet) as filed on his federal income tax return based on his accumulated, invested wealth. Some of that wealth was amassed during the time he did in fact have earned income (such as during his employ at Bain Capital), upon which he did pay federal income tax based on the rate structure in effect at the time to which any other tax payer would have been subject. If a middle-class family paid income tax on, say, $75,000 of earned income, both they and Romney paid the same tax on that level of earned income. Romney, having earned more than $75,000 annually during his years of employment then paid the same and even higher rates on earned income amounts above the $75,000, resulting in a much higher overall tax bill.

As Common Sense points out above, please define "fair share." It is simply impossible to have a policy debate until we agree on the facts.

Jeffrey Brown

Per the Huffington Post, Romney paid over $4 million of income taxes for 2010. Incredibly unfair share. Perhaps we should all pay the same amount, independent of income. Flat $5k or so, anything more you get to keep.

Aaron Regunberg

Benjamin, I think your comment proved the point of mine that you quoted. The U.S. has a tax code that taxes capital gains (overwhelmingly made by the richest 1% of Americans) at a far lower rate than other income. Why does this difference exist? Well, because the rich have a lot more political muscle to shape the tax code--in fact, Mitt Romney and other high-level leaders of Bain Capital were heavily involved in pushing for the lowering of these tax rates.

That's the whole point.

Russ Hryzan

Why are capital gains taxed lower? Pretty common sense reason why. When you invest in companies, stocks, commodities, etc, you stand a chance of losing money. There's a lot of risk. When you show up to a full-time job, you do your work, collect your paycheck, and there's virtually no risk involved. Risk deserves to be incentivised.

Personally, I'd rather see all Americans pay a low flat rate, but that'll never happen. Too much "progressive" liberal brainwashing going on for that to ever happen.

Jonathan Flynn

I still remember, "Ladies and gentlemen, meet your next President, Newt Gingrich." How does this guy get a column.

Donn Roach

Jonathan – I get a column because you remember what I write. thank you! smile


Aaron,

This point doesn’t make sense:

“The U.S. has a tax code that taxes capital gains (overwhelmingly made by the richest 1% of Americans) at a far lower rate than other income. Why does this difference exist? Well, because the rich have a lot more political muscle to shape the tax code”

If the rich are able to yield their power to influence capital gains laws they should also be able to do the same for income tax, no? They can’t have power over one piece of the tax code and not another. If that is the situation, it debunks your hypothesis that being rich equates a tax policy influence advantage. But that’s not the thrust of your points and I’d like to address those.

Regarding reducing labor costs, you reduce your labor costs as much as the market will bear. Your analysis, and maybe it’s due to its summary nature, seems to occur in vacuum when our economy is a living breathing entity. Numerous organizations over the last several decades have departed the US to find cheaper labor overseas, but companies that remain – and there are thousands – capitalistic impulses are curtailed by the market realities. Meaning you have to pay a premium for skilled labor, you have to deal with unions, you have to deal with minimum wage laws, etc.

I also don’t adhere to worker as non-capitalist. If you look at how workers (US workers specifically) have operated over the last several decades most people are not staying with one company their entire careers. Instead they are taking advantage of opportunities that present themselves and are marketing their skills to the ‘highest bidder’. Thus, many workers are becoming mini-capitalist organizations seeking the highest profits (personal income) they can achieve.

You speak about the owner being capital-rich and thus not dependent upon working in order to eat. It’s not debatable that owners with capital do not have to worry about their next meal and can thus decide to work or not. They have amassed a level of wealth, or their forebears have, that has given them that choice. This ability shouldn’t be punished by government, government should be there to ensure there is equal opportunity to workers to become owners through their meritorious effort and skill. Ya know, life, liberty, and the pursuit of happiness.

Romney’s tax rate isn’t class warfare – class warfare occurs when you target a specific class and either elevate or degrade them because of their membership within an arbitrary “class”. By increasing taxes on ‘the rich’…you’re creating a paradigm and defining haves and have nots. That creates class and as a result each individual class will and should defend itself. The rich are more capable of doing so by virtue of their excess income so it seems to be the fair way to address the problem is create a tax rate that is equal for all.

Jonathan Flynn

Defining haves and have nots? Rich people have and poor people have not. This is not an arbitrary distinction.
It is tautological.

Michael Byrnes

Aaron you have a very narrow view of how businesses operate when you maintain that “maximizing your profits, which means reducing your labor costs, which means lowering wages as much as is possible’. This is a pretty simplistic view of business and how they operate. Maximizing profits may involve reducing labor costs which may or may NOT mean “lowering wages as much as is possible”. Labor costs can be reduced by increasing efficiency of production. “Maximizing profits” can be achieved by reducing material costs or by increasing prices.

Art West

Great, well-reasoned article.

As you intimate, the tax-and-spend progressives exhibit a ton of hypocrisy by targeting rich people to tax more. Whether driven
by envy or some sort of self-evident natural law, the fact remains that they single out a class of people to inflict burden on -- contrary to their philosophy of fairness and equality.

The sustainable, long-term solution IS in reducing spending and enabling all people to keep more of what they earn. The "solution" of giving government an ever-larger pot of money to play with simply creates an ever-increasing number of programs and people on the receiving end of the dollars. The end result of such a practice will always be what you see happening in Greece.

Art West

Aaron:

In America, at any point, that "worker" can choose to become an "owner" himself. He is not locked in to a life of worker status. He, too, can choose to start his own business with his own initiative. That is the opportunity that our country guarantees.

Mike Govern

Thanks Art. Aaron's assumption is that we are assigned and "stuck" in a class. One of the great things about this country is that hard word and initiative ARE rewarded--you can go from poor to middle-class and above by working hard and making smart choices. But for many, that's too much effort. Easier to push the class warfare button and say "gimeeee." And there are plenty of short-sighted, power-hungry politicians to tell them they are right....and, of course, people like Aaron.




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