Taxing The Rich – Part 1
As you’re about to see via several videos, the war cry of “tax the rich” is used to enact policies that damage the middle class. Before we get into the meat of this though, as always, we need to clarify our definitions.
Much like how people tend to group “the poor” into one block of people, despite the fact there are two distinct types of poor, people also group “the rich” into one block as well.
Calling a hedge fund manager who made $800 million income last year “rich,” even as a pejorative, is fine. He’s clearly rich and clearly a Wall Street insider, supported by government in several ways because of corporatism. Do I care if government raises taxes on this guy? Not really.
But, as I discuss in my book, turning around and then calling the hard working small business owner with 10 employees, who works 70 hours a week, making $180,000 a year, while trying to support a family of four “rich,” like the hedge fund manager, is insane. This person is doing nothing wrong. Quite the opposite, he’s busting his ass to create jobs and services that the economy desperately needs. Should we raise taxes on this guy? No. If we do, we’re going to create all kinds of problems for everyone, including (and especially) people who make less money than he does. Here’s how.
Take a few minutes and watch this video:
This is what the progressive income tax system does. When you glance at it, it seems fair. But when you actually dig into the numbers, you’ll see it clearly punishes hard work and responsible behavior, while rewarding laziness and irresponsible behavior.
Again, “Harry” in the video isn’t some corporatist fatcat sitting in a high rise office on Wall Street paying lobbyists and controlling politicians to line his pockets. Instead, he’s a hard working business owner and a net contributor to the economy. If there are more Harrys in the economy, economic prosperity increases for everyone, including the poor and middle classes. If there are less Harrys in an economy, everyone loses (except for the upper 1% of the ultra rich, which is a different category entirely).
By the way, this video doesn’t show the end result. Harry might spend the rest of his life grumbling and busting his ass to support people who refuse to do as much work as him. Or he might pack his shit and move to a different state, province, or country that doesn’t punish hard work as much. I’m a “Harry” and I did this myself when I moved from highly-taxed Oregon to low-taxed Washington state, and I will do it again when I leave the US completely in 2025.
“But, wait. We NEED to raise taxes on ‘the rich’ because that’s the only way to support our government services.”
Nope. You could literally tax the rich at 100% and it wouldn’t even support federal spending for half a year(!). That’s to say nothing about state and local governments.
Don’t believe me? Take a few minutes and watch this fun video, starting at 2:20.
That’s right. You could tax everyone making more than $200,000 at 100%, confiscate all the wealth of the Fortune 500, end the wars in Iraq and Afghanistan, confiscate all the wealth of 500 wealthiest people in America, and a bunch of other things and still not be able to fund the US federal government for just one year.
Well, the rich used to pay a lot more in taxes years ago, and our economy was better than it is now! So clearly the higher the taxes on the rich, the better the economy is.
The rich did NOT pay higher taxes years ago. That’s false Societal Programming. They paid a higher tax rate, that’s true, but in terms of the total amount in actual taxes paid as of percentage of income, high income people paid far less in taxes in years past than they do now. Peter Schiff demonstrates this with this article here. To quote it:
The new political spin echoed in Democrat talking points is that the rich are paying the lowest taxes since 1950. The bogus statistic results from the meaningless fact that federal tax revenues currently “only” constitute 16% of GDP. However, this figure is rendered meaningless when considering the inflated nature of today’s GDP figures, and the exclusion of rising state and local taxes. When it comes to tax burdens, GDP means nothing. What counts is what percentage of income taxpayers actually fork over. Those numbers tell a different tale.
Today a married couple with a combined income of $250,000 (assuming each spouse earns 125,000) will pay about 40% of their combined incomes in Social Security, Medicare, and federal taxes, if they take the standard deduction. (I have included as part of their incomes and taxes the Social Security and Medicare taxes paid on their behalf by their employers – which in reality are borne by the employee anyway. I then added that figure to their incomes, and divided the total tax paid by that higher income. I did not factor in this year’s one time 2% payroll tax holiday.)
Compare that to a household in 1950 that earned $25,000 per year (the approximate equivalent to $250,000 today). Assuming all the income was earned by the husband, which was the norm at the time, the total tax take using the standard deduction and including both the employee and employer social security taxes, would have been just below 22%. In other words, despite claims that taxes are at their lowest levels in 50 years, today’s high earning couple pays over 80% more in federal taxes than their 1950 counterpart!
My guess however is that the real difference is even greater. In both instances I used the standard deductions to arrive at taxable income. But the 1950 code was far more generous than the current code in its allowances for tax shelters. As a result, my guess is that the typical couple making itemized deductions in 1950 paid less than half the amount of their modern equivalent. Of course back then there were also far fewer states imposing their own income taxes, and those that did generally had much lower rates than what prevails today. Local sales and property taxes were also lower.
It is interesting to note that about 45% of the total federal tax paid by this modern couple went to Social Security and Medicare. In 1950, Social Security represented less than 1.5% of their total federal tax (Medicare did not yet exist). If you just compare income taxes alone, the modern couple pays 24% in tax and the 1950s couple paid about 21.5%. It is no accident that advocates for higher taxes fail to mention this issue.
So, contrary to Societal Programming, people making six low or mid figures are paying more in taxes today than they they did in decades past. Is the economy better for the average working man today? Is government more efficient? Has taxing the crap out of higher income people helped anyone?
Again, I will repeat that if by “rich” you mean people making hundreds of millions of dollars a year, and you want to raise taxes on those folks, then you’ll get no big argument from me. But raising taxes on hard working people in the normal, everyday upper class harms everyone, including the middle class.
To give you both sides of this issue, in the next part of this article I’ll analyze some left-wing videos attempting to refute this.