Should Taxes Be Increased on the Wealthy?

Overview/Background

1. Since the rich always alter their spending, investment, work, and tax behaviors in response to rate increases, the amount of revenue brought in to the federal government can actually decrease, which is explained by the economic principle known as the Laffer Curve. It seems intuitive that tax revenues would increase as you raise revenues; however, the higher the rates get, the more likely taxpayers will alter their behavior and the more likely the economy will suffer, resulting in a smaller tax base. In other words, tax revenue = taxable income * tax rate. If the tax rate goes up but the taxable income goes down, than the total net revenues will stay the same or even decrease.
   
   
2. Tax increases usually have a negative effect on the economy, since consumers have far less money to spend and invest; slowing the economy consequently decreases revenue (since incomes are smaller) and increases spending (due to increased entitlement spending on unemployment, welfare, etc.). Every tax dollar paid to the government is taken out of the private sector, which means less money is available for consumer spending and private investment. This leads to a slow down of economic activity. Even President Obama, who heavily advocates higher taxes on the rich, has said that you don't raise taxes in a recession due to the negative economic effect.
   
   
3. As we've seen recently with the Alternative Minimum Tax, inflation eventually brings incomes up to the point that the middle class is hit by taxes originally targeted for "the rich". The first income taxes put in after the 16th Amendment to the Constitution included a single bracket of only 1 percent, targeted at $20,000 income, which only the "rich" at that time could attain. As government expanded, the need for more tax revenue arose, so taxes on these rich people rose. Scheming politicians knew however, that inflation would eventually bring the vast majority of the nation into these tax brackets, so they purposely left out an index to inflation. That original 1 percent tax has morphed into the most complex tax code in the world, with marginal federal rates as high as 70 percent in the early 1980s; they're currently around 35 percent (not counting state, local, social security, and a myriad of other taxes we pay). The Alternative Minimum Tax (AMT) was another "loophole" closure, which forced the very rich to pay a minimum percentage no matter what their other deductions added up to. However, this is yet another example of a tax that wasn't indexed for inflation, so in the near future, tens of millions of middle class individuals are destined to get hit with the shock of this alternate tax. Politically, when politicians want to raise taxes, they use one of three justifications: 1) There's a crisis, such as a war or depression; 2) it will only be temporary; or 3) This will only be on the rich. The reasonably thinking citizen should know that once these taxes are instituted, they almost never go away, and they eventually hit everyone.
   
   
4. Taxing the rich does nothing more than shift money from the private sector, where it is usually invested and spent efficiently, to the government, where it often ends up going to special interests or campaign contributors, or where it's inefficiently squandered in government bureaucracies. Citizens of all wealth levels work hard for their money. Many richer individuals not only work hard, they sacrifice every day luxuries so they can save and invest in order to achieve financial freedom and carry a large safety net of cash. Americans don't want to squander their hard-earned cash on useless investments or consumer goods. When people are buying consumer goods such as smart phones, cars, houses, computers, etc., they evaluate different products, looking for the best combinations of price and quality. Consequently, cash goes to the companies with the best quality & efficiency. On the investment side, individuals will evaluate business plans, management, growth opportunities, risk, etc. to determine if the investment is worth making. Consequently, the new ventures most likely to succeed are given the cash. On the government side of things however, politicians are spending other people's money. The success or failure of the spending doesn't matter to them as long as their campaign financers are happy and they can attain re-election. This is why you end up with such taxpayer-funded debacles as the "Bridge to Nowhere" and Solyndra. The ironic part of government spending is that the failure to see results is usually used as a justification why even more funds are needed for the failing program. For example, the "War on Poverty" was started by Lyndon Johnson in the 1960s. Despite the fact that poverty continues to grow after 50 years, more entitlement spending is called for. The Department of Education has produced steadily decreasing testing scores, but politicians consistently call for more spending there. The U.S. continues to grow its dependency on foreign energy sources, yet the Department of Energy continues to grow their budget. The list goes on and on.
   
   
5. It provides less incentive for government to cut spending and reduce its size & intrusion into our lives. As government spending grows, so does the number of individuals working in government, the number of enforcement/implementation agencies, the number of regulations, and the number of limits on our freedom. Few will dispute that a myriad of federal programs and agencies such as the Department of Energy, the Department of Commerce, Fannie Mae & Freddie Mac, the FDA, the EPA, etc. have slowly taken a way our freedoms and tacked on a ton of stifling regulation on businesses. All would be likely candidates for cutting if politicians had to balance the budget with the current revenue levels. Taking more money from the wealthy will take away incentive to cut these deadweight agencies, leading to a maintenance or steady increase in the size and intrusion of government in our lives.
   
   
6. If marginal rates get too high, it might motivate some of the richer people to move to another country, taking with them all of their potential tax revenues. In a technology dominated world, with smart phones, the web, satellite communication, etc., it's easy for people to move to a different country yet maintain their contacts in the U.S. and experience American culture. If politicians continue to take more and more wealth from the rich, these individuals are simply going to pack up and move to some other low-tax haven. Not only would American businesses lose the consumer and investment spending of such individuals, the government would lose all it's tax revenue. The top 1 percent pay almost 40 percent of federal taxes. If a majority of them leave, the poor and middle class will end up picking up the tab.
   
   
7. It's yet another way of dividing Americans; class warfare misdirects anger at the government and life circumstances by turning the lower & middle classes against the rich, and the rich (who increasingly resent paying an increasingly greater share of the tax bill) against the poor and middle class. The term "class warfare" is frequently tossed around by politicians. What does it actually mean? It starts with politicians such as President Obama and communist-initiated protests such as the "Occupy Wall Street" movement. These leaders will rail against the excesses of the rich, firing up struggling lower income individuals with envy of their luxuries and unnecessary wealth accumulation. The poor and middle class are taught to hate these rich individuals who they don't feel are sharing enough of their good fortune. On the flip side, hard-working individuals who attain success feel they are singled out and punished for their achievements. They see that 47 percent of Americans pay zero federal income tax, with the top 1 percent taking on 35-40% of the burden, yet the same individuals who pay nothing and receive the most government benefits are the ones crying for more taxes on the rich. They see a lot of individuals who don't want to work, yet expect handouts that middle-upper income individuals are paying for. Consequently, the upper class learns to hate the poor and lower income citizens. Taken together, you have the vast majority of Americans fighting each other; thus, you have "Class Warfare". This doesn't bring people together or solve problems; it simply helps politicians who engage in the class warfare get elected.
   
   
8. Lower taxes means higher potential profit, so individuals are more likely to invest and start new businesses. New businesses bring competition, leading to more innovation and better products & services. New and small businesses are also by far the greatest creator of new jobs. Lower tax rates mean businesses have a greater potential for take-home profit and growth. Thus, more investment funds flow into business startup & expansion. Plus, individuals are more likely to leave their jobs are start up new, successful businesses of their own.
   
   
9. Less money is given to private charities that are usually efficiently run, with more funds instead going to lobbyists, campaign contributors, and other friends of politicians (i.e. "crony capitalism"). Even when money is directed to worthy causes, the federal bureaucracy incurs so much inefficiency and fraud that only a fraction of it goes to the intended recipients. Wealthy individuals such as Microsoft's Bill Gates donate tremendous amounts of money to charity every year. In fact, Gates and Warren Buffett have issued a challenge to all billionaires to donate a certain percentage of their fortunes. Throughout American history, the most successful capitalists, such as Andrew Carnegie and John Rockefeller, benefit the most charities. Look at any college for the name of various buildings or scholarship programs. They almost always come from some wealthy individual that wanted to return the benefits of their successes back to the people. Rich people can only spend so much, so as they near death, they look for ways to pass on their contributions. So they direct money to private institutions and charities they feel are efficiently run and worthwhile. With private charities, much more of the benefit actually reaches the intended recipients. On the government side, however, politicians are in charge of the money, with inefficiently run government offices distributing the funds. Consequently, when you tax rich people more, the extra money only goes to campaign contributors and the waste machine that is the federal bureaucracy. Put yourself in the position of a billionaire. Say you had $1 billion that you wanted to give away. Would you want that to go to the U.S. government, or would you want to decide who receives it? Which do you think would have the greatest benefit on society as a whole?