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?

Nope.

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.

16 Comments on “Taxing The Rich – Part 1

  1. The people who use the whole “higher tax rates during the 50s didnt ruin the economy!” thing also forget to mention that capital flight was essentially impossible at the time. Most if the major manufacturing/economic centers outside the US had been bombed to shit during WW2, and the US had some of, if not the most business-friendly policies of nation with adequate infrastructure. There were no other options. Today this is far from the case.

  2. Three points on this:

    1. The argument I use, although I don’t hear it from many other people, is that the progressive tax system is based on utility, not actual dollars. In economics, utility means how useful an individual dollar is. For example, if you wrote a check for $10k and gave it to Bill Gates he wouldn’t even notice it, yet if you gave that same check to somebody making minimum wage it would change their life. When you have a flat tax taxes hurt lower income people much more than higher income person. A person making $100k paying 10% in taxes is giving up luxuries to pay the tax, a person making $20k paying 10% in taxes is giving up food, rent, education, etc. to pay the tax.

    2. The first video implies that people making more money do so because they work harder. This is certainly true sometimes, but there are are many people who don’t fall into that on both sides. I haven’t seen any data to suggest that the former is more common than the latter, and in my experience the low paying jobs I worked in high school and college required much more work than the higher paying job I have now.

    3. Many of the super rich pay a lower tax rate than those who are middle class since most of their income comes from investments, which is taxed at a lower rate than regular income.

    Interestingly, in 2012 the Progressive Congressional Caucus proposed a budget that would have created a surplus by 2021. This is the caucus that Bernie Sanders is a member of.

  3. if you wrote a check for $10k and gave it to Bill Gates he wouldn’t even notice it, yet if you gave that same check to somebody making minimum wage it would change their life. When you have a flat tax taxes hurt lower income people much more than higher income person.

    1. We have a concept called equal protection under the law. That means we are all treated equally. Leftists love to talk about equality but as soon as equality makes them uncomfortable they drop it like a hot potato. We’re equal or we’re not. I’m for equality, period.

    2. I make six figures, which many leftists consider “rich” (even though it isn’t), and I promise you that if someone handed me $10,000 it would indeed make a huge difference in my life. It’s true the Bill Gates wouldn’t care, but as I said twice in the article, I’m not talking about the super rich.

    3. Worst case, as a compromise I would be for a system where there was a flat tax for everyone, or even better, a flat national sales tax, but where the truly poor paid zero taxes. The Fair Tax is an example of this.

    in my experience the low paying jobs I worked in high school and college required much more work than the higher paying job I have now.

    You’re confusing labor with value. The burger flipper at McDonalds is “working” harder in terms of manual labor than the president of a company of 80 employees in an air conditioned office, but that president is providing much more value to the economy than the burger flipper, in terms of providing services, jobs, tax revenue, etc. To punish the president for the value he’s providing everyone is insane. Insane!

    Many of the super rich…

    As I said twice, I’m not talking about the super rich. I completely agree they’re getting away with something unethical and unfair. Also as I said, you’re doing the usual left-wing thing of lumping in higher income people with the super rich, which are two completely and utterly different categories of people.

  4. Man, you really put a lot of things in perspective. Not that I would have ever disagreed with you, but you absolutely have a knack for communicating these complex economic issues in a straightforward, easy-to-read manner. That said, we’re screwed. It’s over and it’s been over for quite some time now. The problems plaguing our country are just too embedded and have been left that way for too long. Our primary problem is, from what I gather, money in politics. It’s the tied into the corporatism. Our politicians cannot be trusted to put the people first when they have heaps of money as an incentive to lie and deceive. I don’t have much if anything specific to add to this article other than this general rant. I find it difficult to discuss solutions when it’s quite clear the problems are permanent.

  5. @Caleb Jones says
    > As I said twice, I’m not talking about the super rich. I completely agree they’re getting away with something unethical and unfair.

    Honestly, I think that is a little unfair. Certainly there are some super rich people who milk the system to their great enrichment. Bankers for sure, government contractors etc. But Bill Gates? He ain’t perfect, but the company he built from thin air brought unprecedented value to everyone in the world. Steve Jobs, the same. Ford, Carnegie, Walton, Rockerfeller, Bezos? These titans of industry brought MASSIVE value to the world through their innovation, risk taking, hard work and vision. They are a completely different category of person than, for example, George Soros, who made his money by fucking with the British Pound’s exchange rate (due to the incompetence of the British government at the time) or the super rich bankers of “too big to fail” who got big ass bonuses despite running their companies, and the economy, into the ground.

    Again, I’m not saying these titans of industry are angels. Of course they aren’t, nobody is. But their legacy was to make the world a richer and better place, and they deserve a completely different treatment than the super rich welfare whores.

  6. The problems plaguing our country are just too embedded and have been left that way for too long.

    Correct.

    Our primary problem is, from what I gather, money in politics.

    Indirectly. The problem is our politicians have too much power. If they didn’t have the power they have, money wouldn’t be a problem.

    “Money in politics” wasn’t much of a problem in the 1800s, since politicians at the federal level couldn’t do very much back then. Today politicians wield vast power, so now money in politics is a problem.

    Take the power away from the politicians, and the money will quickly evaporate.

    I find it difficult to discuss solutions when it’s quite clear the problems are permanent.

    There are no societal level solutions (other than to wait for the collapse and then rebuild).

    Rather, the solutions are on a personal level (adopt an Alpha 2.0 lifestyle, disconnect from the system, leave the country if necessary, etc).

    Honestly, I think that is a little unfair. Certainly there are some super rich people who milk the system to their great enrichment. Bankers for sure, government contractors etc. But Bill Gates?

    Sure. Some of the super rich are perfectly okay, or better than okay. I’ve said before that Bill Gates has brought more prosperity to the world than any other single individual in human history.

    But there’s way too many super rich many who are indeed part of the problem. For every Bill Gates you’ve got 2 or 3 Hillary Clintons.

  7. Why do I never hear this shit come out of a Republican’s mouth? All they’re ever interested in talking about is “religious liberty”, gay marriage, transgender bathrooms, and guns.

  8. @Caleb Jones
    > “Money in politics” wasn’t much of a problem in the 1800s

    This is exactly right. All this talk of money in politics totally misses the point. The problem is not money in politics it is that politicians are for sale, and that they have something to sell.

    > There are no societal level solutions (other than to wait for the collapse and then rebuild).

    Not to be nit picky, but I think this is an important distinction that a lot of people miss. There certainly are societal level solutions that were the USA to adopt would recover the damage and restore the country. The problem is that the people in the country don’t want them.

    Elect Gary Johnson and similar people up and down the ballot and America would very quickly become a powerhouse of wealth, growth and freedom. However, like I said before, the American people want that as much as they want a ghost pepper enema.

    Again, the problem is not Hillary or Trump or whatever politician there is. Every society has corrupt, narcissistic, felonious assholes. No, the problem is that the people vote for them, and like what they get. Which is to say, the fundamental reason that “there are no societal solutions” is that the members of that society have an utterly incorrect model of what works, driven, by the most part, by fairy tales and fantasies.

    Don’t blame Hillary or Donald. Blame the people who voted for them.

  9. This kind of articles are great! Keep the coming!!

    But dont completely get rid of movie stuff please 🙁

  10. Why do I never hear this shit come out of a Republican’s mouth? All they’re ever interested in talking about is “religious liberty”, gay marriage, transgender bathrooms, and guns.

    That’s the problem with conservatives; they’re focused on the wrong things.

    There certainly are societal level solutions that were the USA to adopt would recover the damage and restore the country. The problem is that the people in the country don’t want them.

    If people won’t do a thing then a thing won’t happen. So you’re saying the same thing I’m saying. There is no way out of this.

    Elect Gary Johnson and similar people up and down the ballot

    It will never happen. Thus my point. There are no societal solutions here.

    and America would very quickly become a powerhouse of wealth, growth and freedom.

    Extremely unlikely. The problems are too large and entrenched.

    Don’t blame Hillary or Donald. Blame the people who voted for them.

    Agree 100%.

  11. “in my experience the low paying jobs I worked in high school and college required much more work than the higher paying job I have now.”

    You are also forgetting the fact that the reason why you have your high paying job now is because many years ago you did those crappy works in the first place.

    When you pay a 50 year old manager 30 dollars for something he can do in one hour you are not just paying for the hour itself. You are paying for the hour and for the fact that he has over 20 years or work experience that allowed him to be able to become a manager.

    The other way around. The young guy making a low salary of 8 dollars per hours is not just getting the 8 dollars. He is getting the 8 dollars and 1 hour of work experience, which is arguably even more valuable when you are starting out.

  12. “yet if you gave that same check to somebody making minimum wage it would change their life.”

    I doubt it. More likely, they’d quickly go back to being broke. Probably use it as a down-payment for a car they don’t need, in fact adding a potentially extra long-term expense. Or use it for a useless degree and submerging themselves further into the SP’d lifestyle. Because of course after your degree, you’re supposed to get married and have two kids and two dogs, a mortgage and two car-payments. It’s this sort of thinking that’s the problem. You’re not gonna fix that with $10K, or even $100K. Chances are slim.

    “(other than to wait for the collapse and then rebuild).”

    Really, it’s just this. It could be the wake-up call that (more) people need.

    “Even the rich advocating to tax the rich heavier don’t really believe in it…”

    Bill Gates, in general, seems either confused or very apathetic. I can’t help but think he’s doing his philanthropic work for / because of his wife. After all, their foundation, last I checked, is partners with Monsanto for seeds and food. And we all (should already) know how they treat our domestic farmers. They can be a huge detriment to the long-term physical and economical health of the people they say they’re helping.

    I love Windows, but as far as his charity work, he may be doing more harm than good.

  13. “But, wait. We NEED to raise taxes on ‘the rich’ because that’s the only way to support our government services.”

    Or we could lower government spending which has increased out of all proportion in the last 30 years. Call me crazy …

  14. Or we could lower government spending which has increased out of all proportion in the last 30 years. Call me crazy …

    But then you hate poor people and hate teachers and hate children and hate minorities and want tax cuts for the rich you big jerk! DON’T YOU REALIZE THOSE PEOPLE NEED HELP?!?

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