Eat the rich

We’ve gone from being a country which knew instinctively that there was no such thing as a free lunch to one convinced the consumption of free lunches is revenue-generating economic activity. ~ signature I read on the internets.

I talked to a fellow today who suggested one partial solution for our financial woes is an increase in taxes on the wealthy.  God knows Obama & Co pound this drum often enough.

I disagree.  It isn’t a viable solution, or even a partial solution.  Here’s a handy video which explains exactly why.  The short version is, we could take every penny from the entire Forbes 400 list – every damned penny – and at current spending levels that’s enough money to pay for three months of the federal budget.

Yep.  Just three months.

We’re just spending too damned much money, y’all.  Look at it this way: The $2.1T increase in the debt ceiling was more than Canada’s entire GDP.  157% of Canada’s entire GDP, actually, so well over.

The numbers are too great to be solved by modest tax increases so the “rich” can “pay their fair share”.**  We’ve already seen that we could strip them of all their money and assets and not even fund the country for a year.  Never mind paying off our staggering debt load and righting the economy.

Then there’s the lovely little Laws of Common Sense.  They go by many names; Murphy’s law, diminished returns, unintended consequences.  You can increase taxes all you want but along with baseball and apple pie, Americans have tax avoidance built into the blood.

Link.

Here’s a two-minute drill in soak-the-rich economics:

Maryland couldn’t balance its budget last year, so the state tried to close the shortfall by fleecing the wealthy. Politicians in Annapolis created a millionaire tax bracket, raising the top marginal income-tax rate to 6.25%. And because cities such as Baltimore and Bethesda also impose income taxes, the state-local tax rate can go as high as 9.45%. Governor Martin O’Malley, a dedicated class warrior, declared that these richest 0.3% of filers were “willing and able to pay their fair share.” The Baltimore Sun predicted the rich would “grin and bear it.”

One year later, nobody’s grinning. One-third of the millionaires have disappeared from Maryland tax rolls. In 2008 roughly 3,000 million-dollar income tax returns were filed by the end of April. This year there were 2,000, which the state comptroller’s office concedes is a “substantial decline.” On those missing returns, the government collects 6.25% of nothing. Instead of the state coffers gaining the extra $106 million the politicians predicted, millionaires paid $100 million less in taxes than they did last year — even at higher rates.

What you tax, you get less of.  Basic macroeconomics.  Remember way back when politicians first discovered they could jack the taxes sky-high on cigarettes and no one would complain?  Or, no one that mattered.  And hey, it was for the children.  The money was just to pay for schools and suchlike.  Up went cigarette taxes.  And up again.  And again.  It became a game of which state could tax them the most (they loved children more than the others, naturally).  I called it back then, and within a year, I was proven right.

Raising taxes continuously began to show decreasing returns in revenue.  States had promised that money, in some cases spent the money and/or borrowed money based on expected revenues, and the nasty smokers went and quit, thereby keeping their money in their wallets.  How rude!

The 10% luxury tax killed the large-boat industry.  Google it.

People intelligent enough to have an income that qualifies them as “rich” (and just wait until you find out the politicians have decided combined household income of $250k is rich) are also intelligent enough to turn down a raise that puts them into a higher tax bracket, meaning they now work more and take home less.  Or the wife will cut back to part-time work.

What you tax, you get less of, whether it be smokers, sports-fishing yachts or millionaires.  People will not work harder knowing you’ve got your hand in their wallet.  Be suspicious of anyone who says we could bring in $$XYZ by raising taxes on [insert here].  Such people are always shocked and surprised when they find out the revenue gains aren’t what they promised.

Besides, we don’t have a revenue problem.  We tax everything, including, literally, the air we breathe and the rain that falls from the sky.  No, what we’ve got is a spending problem.  Our debt has gone parabolic.  The Germans tried this in 1923.  It didn’t turn out too well.

 

** A silly statement, and also Marxist.  Are they using more government than I am, somehow?  How is it, exactly, that these rich people aren’t pulling their own weight?

 

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Published in: on August 5, 2011 at 12:42 am  Comments (5)  

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  1. I agree with cuts, but if rich folk are getting breaks, it’s time for those breaks to end too. If they’re paying lower rates than the rest of us, they can pay the same rates as the rest of us. They may not be paying lower rates or getting breaks; that could be rhetoric. My understanding of the logic of giving tax breaks to the rich and companies is that they are going to pump that money back into the economy. From what I hear, they’re saving it or outsourcing (helping other countries’ economies). I heard one guy saying we should reward instead of punish. That is, give breaks to people/companies that spend here. That works for me. A general hands-off-the-rich approach doesn’t.

    • Agreed. The Federal Reserve has pumped trillions in liquidity into the TBTF banks in the hopes of reinflating the market through keeping credit available to the consumer. The banks take the money and use it on the stock market instead. This is ridiculous.

  2. For much of the mid 20th century, the highest personal income tax was over 80% and for awhile over 90% and the rich did just fine. That said, the deduction structure was different (car loan interest was tax deductible for example). We have a regressive corporate income tax that should be lowered and tighter requirements created to guarantee that all corporations pay some tax if they make a profit. Some things we should consider 1) a base tax rate so that everyone pays something, we can still have higher rates for higher incomes. 2) a federal sales tax. We still need to cut spending more. We don’t need 22 aircraft carriers. We don’t need to be in a land war in Asia. We don’t need troops in over 100 countries. We could also increase tariffs on Chinese products.

    • 2) a federal sales tax.

      What you tax, you get less of. Unless we change the consumption-based economy, this is not a good move. Of course, if we change the economy to something based on wealth-creation rather than consumption, this is exactly what we need to do and brilliant.

      I favor the Fair Tax implemented as a national sales tax, with a rebate to families below the poverty line. One page of coherent tax code, with the caveat that any politician who proposes legislation to change the tax code has to immediately resign. Oh sure, it might get voted in, but they must sacrifice their career to do so. It’s the only way to be sure of keeping Congress’ hands out of the till.

      Wells Fargo is the sixth-largest bank in America, known to openly keep two sets of books, and it paid no federal income tax last year. What you have to keep in mind is that when politicians say “we must make the rich pay their fair share”, they aren’t actually talking about making WF and the like stop acting like the American taxpayer is their own private piggy bank. They’re just playing class-war shadenfreude politics. No, they’ll take action aimed at the middle class.

      I absolutely agree with tariffs and raise the ante with wage arbitrage. By act of legislation, the American worker is one of the most expensive on the planet. And then, he can’t get his thyroid pills in Canada. That is not the free market at work, that’s corporate protectionism.

  3. It’s the entitlement mentality: We’re owed for not working.

    Whole classes of Americans no longer produce as much as they consume.


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