Soak the Rich

On Christmas Day, we are filled with thoughts of charity toward our fellow man. We also think more about all things spiritual, such as the immortality of the soul and the afterlife.  Those who believe in Heaven have all heard that it is easier for a camel to fit through the eye of a needle than for the rich to gain entrance to Heaven.



Pastor Rick Warren was shown, in a video clip I saw several times on CNN yesterday, saying that it is not a sin to be rich, but it is a sin to die rich. That is a fine argument for philanthropy.



And so, when CNBC's Website yesterday ran an article (titled "Majority of Rich Want Themselves Taxed More") about how the well-to-do say they are willing to pay higher taxes, it seemed entirely in keeping with the Christmas spirit.




Sadly, but not surprisingly, however, reading beyond the headline revealed that this was just another example in an unending stream of shoddy journalism.

The article cited a poll done by American Express Publishing and The Harrison Group showing that "67% of the top one percent support higher income taxes."  More specifically, "more than half" support higher taxes on those making more than $500,000 per year.  (In case you're wondering, estimates of what household income places you in the top one percent range from about $400,000 to over $500,000.)

"More than half" of the top one percent?  That's a very interesting breakpoint.  If you do a bit of research, there is a very substantial difference in both income and wealth

between the bottom and top halves of that top one percent.
The bottom half includes professionals like doctors and lawyers who are comfortably upper middle class but not truly wealthy.

The top half of that one percent - and especially the top 0.1% of all taxpayers - is where the real concentration of wealth is found.

An understanding of the big difference between the lower and upper halves of that top one percent makes it easy to understand how half of this group could be supportive of higher taxes on themselves (because they can easily afford it), while the other half are not so keen.  And that explains why more than 60% of the top 1% say they "carry an unfair burden" in the amount of their income they pay in taxes, which doesn't sound as though they would be at all supportive of taxing themselves more.

The CNBC article goes on to tell us that "Other recent surveys show that the wealthy support higher taxes as part of a balanced solution to the government debt problem that includes spending cuts."

A "balanced solution" must include spending cuts?  That's what we've been told. How about some arithmetic?  I know, it's Christmas Day, and you'd like to give your brain a rest, but don't worry, I've done the arithmetic, so all you have to do is read it.

The top one percent represents about 1.4 million taxpayers, with an average taxed income of about $1.3 million.  If we were to add a 4% surcharge (which is what the president has proposed) to the top marginal tax rate on the amount of income taxed at the top rate (which means the income above about $180,000/year), that would generate about $62.72 billion in additional revenue.  The federal budget deficit for the current fiscal year is about $1.372 trillion.  So this surcharge on the top one percent of taxpayers would reduce the budget deficit by about 4.6%.

The House Republicans don't want higher taxes on anyone, but they have suggested they could go for a cut-off of $1 million, while the president is seeking higher taxes on incomes above $250K.

The NCPA needs a reality check itself!

You have to be careful about believing the numbers you read.  The National Center for Policy Analysis, which espouses free-market ideals and doesn't like taxes or government regulation, says the proposed higher taxes on those with incomes over $250K would bring in an additional $42 billion.  That cannot be correct, because that proposal would mean higher taxes on a lot more people, so it would have to raise revenues by more than the $62.72 billion I estimated for the top 1%, and the NCPA does not claim to have taken reduced economic growth (which economists say would result from higher taxes) into account.

Do I claim my numbers are accurate?  Of course not.  First of all, I took only a year of economics in college, and I've been only a casual student of economics in the 35 years since I graduated.  Second, calculations made by even the most erudite economic theorists rest on a set of assumptions, any of which could turn out to be wrong.


The point, however, remains: we cannot tax our way out of these enormous deficits.  We must dramatically reduce government spending.  The "soak the rich" approach may make those of us in the other 99% feel better, and at least some of the wealthy seem to be eager to pay higher taxes.

(If you haven't heard Warren Buffett's preaching about this, you've been hiding under a really big rock.)

We all have different ideas about how to cut spending, from getting out of wars and ceasing to be the world's policeman to cutting off entitlement programs for those who are too lazy to be productive citizens and contribute to society instead of sponging.






The point is that if we don't soon have the kind of political leadership it will take to build national consensus about how to reduce government spending, the drag on our economy created by spectacular annual deficits and mind-boggling national debt will cause the most powerful economic engine in the history of the world to grind to a halt.