Caroline Baum of Bloomberg has an excellent column explaining why soak-the-rich taxes don’t work. Simply stated, wealthy people are not like you and me. They have tremendous control over the timing, composition, and level of their income. When the rich are hit with higher tax rates, they adjust their behavior and protect themselves by reducing the amount of taxable income they earn and/or report to the IRS. That usually causes collateral damage for the economy, but the class-warfare crowd is either oblivious or uncaring about real-world effects.
Why, after all this time and an extensive body of data, are we still questioning whether reductions in marginal and capital- gains tax rates increase economic activity enough to generate more revenue for the federal government? “Because they don’t like the answer,” Laffer says of the doubters. “It’s not tax cuts that pay for themselves. Tax cuts on the poor cost you lots of money. Tax cuts on the rich pay for themselves. Rich people can afford lawyers, accountants, and can defer income.” …The rich have the luxury to respond to incentives, to opt for more work and less leisure when the return on work is greater. They are motivated to take risks, maybe start a business, invent something, and get even richer while giving others the opportunity, through hiring, to do the same. The opposite is true for low-income workers. When the government raises taxes, someone struggling to put food on the table for his family may have to go out and get a second job to maintain his level of take-home pay. For this socio-economic group, higher taxes translate to more work. To ignore evidence that the rich behave differently is silly. The government can’t get more blood from a stone, yet it keeps trying. Instead of demagoguing tax cuts for the rich, Democrats should try embracing them for a change. …Academics are busy churning out articles claiming tax cuts for the rich deliver less bang for the buck because the rich save more of the money than the poor. That’s true. It also misses the point. The goal isn’t spending, or distributing other people’s money to create “aggregate demand.” That’s a wealth transfer, not a net stimulus. (Fiscal policy gets its punch from monetary policy, from the increase in the money supply to pay for the spending.) The goal should be to incentivize individuals to work hard, save and invest in the future. It’s about growing the pie. Sound familiar? We’re right back to square one. I, for one, would like to see the debate shift from class warfare over tax rates and targeted tax relief to tax reform. Either scrap the tax code and introduce a simple flat tax with no deductions, or scrap the IRS and move to a consumption tax. If you want to get money out of politics, there’s only one way to do it. Take the tax code out of Congress’s hands.
Baum’s column touches on most of the key issues, but she doesn’t address the political economy of class-warfare taxation. In this video on soak-the-rich tax policy, I provide five reasons why high tax rates are misguided – including the oft-overlooked point that politicians impose punitive taxes on the rich as a prelude to hitting the rest of us with higher taxes.
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] Back in 2009, I narrated a video about the downsides of class-warfare tax policy. […]
[…] Back in 2009, I narrated a video about the downsides of class-warfare tax policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] soak-the-rich tax increases that reduced incentives for productive activities such as work, saving, investment, and […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] soak-the-rich tax increases that reduced incentives for productive activities such as work, saving, investment, and […]
[…] soak-the-rich tax increases that reduced incentives for productive activities such as work, saving, investment, and […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] In other words, Biden’s class-warfare tax plan is bad policy. […]
[…] At the risk of stating the obvious, this is not desirable since class-warfare taxes generally cause the most economic damageon a per-dollar-collected […]
[…] At the risk of stating the obvious, this is not desirable since class-warfare taxes generally cause the most economic damage on a per-dollar-collected […]
Liberals will still issue rallying cries for tax warfare under the guise of fairness. I am curious, why do they claim to be interested in fairness but actually have shown no goals toward the end result of achieving real fairness? Class warfare is economically destructive.
[…] part occurs at about 4:30. What sort of person would actually want to impose tax policy that is so punitively destructive that the government doesn’t collect any additional […]
[…] part occurs at about 4:30. What sort of person would actually want to impose tax policy that is so punitively destructive that the government doesn’t collect any additional […]
[…] Needless to say, I want people to understand that high tax rates are a penalty, and it’s particularly foolish to impose penalties on productive behavior. […]
[…] taxpayers get a greater share of their income from business and investment sources, and thus have more control over the timing, level, and composition of their earnings. Which means they can more easily suppress their income when tax rates go up and increase their […]
[…] But even if they could unilaterally impose class-warfare taxes on upper-income taxpayers, that still doesn’t solve the left’s problem. They would never admit it publicly, but smart left wingers understand that there are two very powerful reasons why soak-the-rich tax increases won’t raise much revenue. 1. There are not enough rich people to finance big government. According to the latest IRS data (from 2008), there are only about 321,000 households with greater than $1 million of annual income. And they have aggregate taxable income of only about $1 trillion. That’s a lot of money, of course, but it wouldn’t balance the budget even if the government confiscated every penny (which would have catastrophic consequences on the incentives of rich people to earn and report income in future years). 2. Rich taxpayers will change their behavior to avoid the tax increases. This is the “Laffer Curve” effect, and it basically means that higher tax rates don’t raise as much revenue as expected because people respond to incentives and reduce the amount of income they are willing to earn and report. The Laffer Curve is especially strong for upper-income taxpayers because rich people have much greater access to lawyers, lobbyists, and accountants. Moreover, rich people are far more likely to earn capital income (interest, dividends, capital gains, etc), and it is much easier to control the timing, level and composition of capital income. […]
[…] 2. Rich taxpayers will change their behavior to avoid the tax increases. This is the “Laffer Curve” effect, and it basically means that higher tax rates don’t raise as much revenue as expected because people respond to incentives and reduce the amount of income they are willing to earn and report. The Laffer Curve is especially strong for upper-income taxpayers because rich people have much greater access to lawyers, lobbyists, and accountants. Moreover, rich people are far more likely to earn capital income (interest, dividends, capital gains, etc), and it is much easier to control the timing, level and composition of capital income. […]
[…] And reason #3 is standard economic analysis, making the common-sense point that if you punish something, you get less of it. This is why it is so misguided to impose higher tax rates on work, saving, investment, and entrepreneurship. […]
[…] And reason #3 is standard economic analysis, making the common-sense point that if you punish something, you get less of it. This is why it is so misguided to impose higher tax rates on work, saving, investment, and entrepreneurship. […]
[…] And reason #3 is standard economic analysis, making the common-sense point that if you punish something, you get less of it. This is why it is so misguided to impose higher tax rates on work, saving, investment, and entrepreneurship. […]
[…] And reason #3 is standard economic analysis, making the common-sense point that if you punish something, you get less of it. This is why it is so misguided to impose higher tax rates on work, saving, investment, and entrepreneurship. […]
[…] really hope to achieve in the area of tax policy, but I want to offer a basic explanation of why the soak-the-rich approach is doomed to fail. There are five reasons in this video to reject class warfare, including a very important warning […]
[…] really hope to achieve in the area of tax policy, but I want to offer a basic explanation of why the soak-the-rich approach is doomed to fail. There are five reasons in this video to reject class warfare, including a very important warning […]
[…] really hope to achieve in the area of tax policy, but I want to offer a basic explanation of why the soak-the-rich approach is doomed to fail. There are five reasons in this video to reject class warfare, including a very important warning […]
[…] really hope to achieve in the area of tax policy, but I want to offer a basic explanation of why the soak-the-rich approach is doomed to fail. There are five reasons in this video to reject class warfare, including a very important warning […]
[…] the surface. There was not enough time to cite the wealth of data and research showing how higher taxes undermine economic performance. There was not enough time to address some of the additional flaws of class-warfare tax policy. And […]
[…] the surface. There was not enough time to cite the wealth of data and research showing how higher taxes undermine economic performance. There was not enough time to address some of the additional flaws of class-warfare tax policy. And […]
[…] business. And even though Obama apparently doesn’t think this means much, there is also lots of evidence that the so-called rich won’t wind up paying much additional tax because they can easily adjust their behavior. I guess the real question is why so many statists […]
[…] ECONOMICS / BUSINESS More Democrat class-warfare https://danieljmitchell.wordpress.com/2010/08/09/the-destructive-economics-of-class-warfare-taxation/ […]
[…] ECONOMICS / BUSINESS More Democrat class-warfare https://danieljmitchell.wordpress.com/2010/08/09/the-destructive-economics-of-class-warfare-taxation/ […]
Couldn’t agree more with you Dan……seems the only thing most people know is doing the same things that don’t work over and over again……case in point……choosing between democrats or republicans……you’d think by now they’d try something totally different by electing a libertarian or independent if for no other reason than to try something else to see if things would change…….perhaps this is why we got our first black president……but i fear this was because of his more socialist leaning tendencies…….people still believe they should get whatever they want regardless of whether it makes sense or not…….the only silver lining is that perhaps now that people have come out of their comfort zone and voted for someone they would have never voted for in the past it may set the stage for this to occur again. Now we just need to show people the RIGHT reason for going out of their comfort zone…….change is never quick…….but it does happen…….lets hope its sooner than later……Thanks Dan……..