An explanation for those who still don't understand why "Taxing the Rich" is bad

[makattak]

Thomas Sowell writes today a most excellent explanation:

http://townhall.com/columnists/ThomasSowell/2008/10/29/taxing_times?page=full&comments=true

Taxing Times
Thomas Sowell

Chief Justice John Marshall said it all in one sentence: "The power to tax is the power to destroy."

It is not the money that is taxed away that is destroyed. What is destroyed is the wealth that does not get produced in the first place, because high taxes make its production not worthwhile.

Those who are receptive to Senator Barack Obama's plan to increase taxes on "the rich" seem not to understand that the issue is the nation's loss of wealth. Today, wealth can leave the country when heavy taxes threaten it-- instantly, in an age of electronic financial transfers-- and create jobs and economic growth overseas, instead of at home.

The two months between the time of a presidential election and the time when the new president takes office is an eternity in terms of how much money can be transferred out of the country electronically before any new high-tax laws can be enacted.

Like so much that is said glibly by Barack Obama, raising taxes on "the rich" has serious-- and potentially disastrous-- implications for the whole country that have been ignored amid the political euphoria.

Moreover, like so much that is proposed under the magic mantra of "change," it is something that has been tried before in many countries and failed before in many countries.

Much wealth from Third World countries flows out to richer countries like Switzerland or the United States, where it is safer from confiscation. Jack up the capital gains tax rate in the United States and more Americans can be expected to send their capital elsewhere.

That means sending jobs elsewhere, so that even people with no capital to invest lose employment opportunities.

Economists have trouble determining how many people are affected by a tax increase because those affected extend far beyond those who write the checks to pay the government.

Taxes on businesses can get passed along to consumers, in whole or in part, even though it is only the business that writes the check to the government.

Payroll taxes or government-mandated employee benefits may be paid for directly by the employer, but these costs reduce the value of an employee to the employer. If these costs add up to $10,000, for example, employers bidding for labor may bid $10,000 less in salary than they would have otherwise.

As in other cases, who writes the checks does not tell you who really pays the costs, since the worker is now $10,000 worse off. The idea that you can single out one segment of society to be taxed or mandated, for the benefit of the rest of society, is reminiscent of a San Francisco automobile dealer's sign: "We cheat the other guy and pass the savings on to you."

The economy is not a zero-sum game where someone gains what others lose. The whole economy can lose when ill-considered policies gain political popularity and stifle economic growth.

People who do not own a single share of corporate stock can still lose big time when capital gains taxes are raised-- not only because jobs can follow capital out of the country, but also because millions of working people's pension plans own corporate stock, and those people's retirement incomes will depend on the value of those stocks, which is reduced by capital gains taxes.

One of the biggest taxes is one that is not even called a tax -- inflation. When the government spends money that it creates, it is transferring part of the value of your money to themselves. It is quiet taxation but often heavy taxation, falling on everyone, no matter how low their incomes might be.

By the end of the 20th century, a $100 bill would not buy as much as a $20 bill would buy in the middle of that century. For people who saved cash, inflation amounted to an 80 percent tax. For others, it was an 80 percent tax minus whatever cumulative interest or dividends they received on the money they invested.

Given the staggering cost of the government's financial bailouts, there is no way that Barack Obama's grandiose spending plans can be carried out without inflation.

When politicians start talking about taxing "the rich," remember the old saying: "Send not to know for whom the bell tolls. It tolls for thee."

So, for those of you who have no problem with "Making the rich pay their Fair Share" (which is somehow MORE than 95% of the taxes for 40% of the people...) please consider what will happen.

This isn't a "maybe the country will have some undetermined problems."

This isn't some vague notion- this is what WILL happen if you raise taxes on "the rich" and investment.

It's really simple- if you hurt my return, my money goes elsewhere.

So, all praise to Barack Obama's plan! He's going to create jobs! (in Ireland)

[Standing Wolf]

If we're all supposed to be equal under the law, why don't we all pay the same taxes?

[AZRedhawk44]

If we're all supposed to be equal under the law, why don't we all pay the same taxes?

Hear! Hear!

Flat-tax for everyone.  If you don't pay your tax, you don't get your voter registration card for the year.

"No taxation without representation" needs a corrolary:  No representation without taxation.

[AmbulanceDriver]

Ya know, I was just thinking about that this morning.  I think I'd take it a step further.  If you're on welfare, you don't get to vote. 

[Fly320s]

If we're all supposed to be equal under the law, why don't we all pay the same taxes?

Agreed. Take the national budget, divide it by the people livingin the US. Every person pays that amount.

[makattak]

Alright, for those of you derailing the point of this article, you may have good points.

However, those who think "Taxing the Rich" will not be swayed by arguments about property rights and/or equality.

They may, however, be receptive to: if you tax the rich, the economy will suffer because people will take their money out.

They may understand: taxing the rich will be bad for you. Let's not make this too convoluted.

[Desertdog]

How many poor or lower middle class people do you know of that has created jobs? 

It is the people with money that hires people!!

They put a luxery tax on the yachts and high priced boats a number of years ago.  It almost killed the boat building and market in the USA.  The rich still bought the same amounts of yachts and high priced boat from over seas and registered them in foreign countries.   

After most of the boat companies closed their doors and laid off their workers, who went on unemployement or welfare, the guys in Washington decided that wasn't such a good idea after all, and recinded the luxery tax.

[RevDisk]

Agreed. Take the national budget, divide it by the people livingin the US. Every person pays that amount.

A nice idea, but you probably want to change "people livingin in the US" to "persons with income higher than x".   Taxing those without any source of income (minors, unemployed, retired, mentally committed, etc) probably won't net you very much money.  Nor would taxing those that make less than the amount you wish to tax.  No sane person would have any inclination to do any work at 100%, unless you're planning some minimum salary scheme?

[taurusowner]

I generally explain it as 'the person writing your paycheck is probably considered "rich".  When he has less money overall, less of that money he still has will probably end up in your paycheck'.

[makattak]

I generally explain it as 'the person writing your paycheck is probably considered "rich".  When he has less money overall, less of that money he still has will probably end up in your paycheck'.

That's nice and simple. However, they'll just say- well he's just greedy then!

Sowell's explanation takes longer but explains how it's not greed, it's simply sound financial decisions.

Also, it's less likely that when an employer gets taxed more, he will actually pay any of his workers less. Pay cuts are rare.

He will, however, look for jobs to cut and will simply not hire new employees. Thus, you may want to try "When your employer has less money overall, someone usually loses their job" is more accurate and likely to be backed up by their personal experiences.

[BrokenPaw]

Sowell's explanation takes longer but explains how it's not greed, it's simply sound financial decisions.

One man's sound financial decisions are another man's greed.

The people who believe that wealth should be redistributed don't understand the idea of managing your money wisely in order to let it grow, because they don't think anyone should have money to spare; if there's money to spare in your account, then it should be taken from you to give to someone who doesn't have "enough".

Once no one has any extra money, things will be fair.  See?

-BP

[Fly320s]

Caution: Thread drift ahead.

A nice idea, but you probably want to change "people livingin in the US" to "persons with income higher than x".

No.  That would still be a progressive tax system.  My idea is the one, true fair way of taxing, at least according to my pipe dream.

Essentially, everyone living (as a legal resident) in the US has the same opportunity to benefit from our system of government.  Since we all have the same benefits, we should all pay the same for that benefit.  That includes children, the unemployed, rich, poor, even Mr Tactical Scapegoat.  This tax system would instantly put everyone on "budget watch" so that the FedGov can't get away with as much free-spending of our money.  Also, there would be no way for anyone to deduct, capital-loss, business-expense, or otherwise write-off their way out of paying taxes.

[thebaldguy]

Homeowners in my city have seen their property taxes more than double in the last seven years. Why? Because someone has to pay to take care of the poor who don't pay anything. The result is people selling houses to rental companies and moving to the suburbs where taxes are much lower.

I see the same thing is happening to Detroit. I was shocked to see that taxes are more than $8000.00/year for houses worth less than $200,000.00.

Over taxing the rich is about as productive as giving the big corporations money for "trickle down" economics. Watch how the trillion dollar bailout will fail to really help anyone but the big corporations. All the money infusions given to banks so far have not worked.

[Brad Johnson]

The Tax Day Parable...

Brad

How Taxes Work . . .

This is a VERY simple way to understand the tax laws. Read on -- it does make you think!!

Let's put tax cuts in terms everyone can understand. Suppose that every day, ten men go out for dinner. The bill for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men - the poorest - would pay nothing, the fifth would pay $1, the sixth would pay $3, the seventh $7, the eighth $12, the ninth $18, and the tenth man - the richest - would pay $59.

That's what they decided to do. The ten men ate dinner in the restaurant every day
and seemed quite happy with the arrangement.  That is until one day when the
owner threw them a curve (in tax language a tax cut).

"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily meal by $20." So now dinner for the ten only cost $80.00.

The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still eat for free. But what about the other six, the paying customers? How could they divvy up the $20 windfall so that everyone would get his "fair share?"

The six men realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share the fifth and sixth man would end up being PAID to eat their meal. The restaurant owner suggested it would be fair to reduce each man's bill by the same percent, each according to the amount of the $100 tab they had previously been paying.

And so the fifth man paid nothing, the sixth pitched in $2, the seventh paid $5, the eighth paid $9, and the ninth paid $12, leaving the tenth man with a bill of $52 instead of his earlier $59. Each of the six was better off than before. And the first four continued to eat for free.

But once outside the restaurant, the men began to compare their savings. "I only got a dollar off my bill!" declared the sixth man who then pointed to the tenth. "But he got seven dollars!"

"Yeah, that's right," exclaimed the fifth man, "I only saved a dollar, too!  It's unfair that he got seven times more than me!".

"That's true!" shouted the seventh man, "why should he get $7 back when I got only $2? Why should the wealthy get all the breaks?!"

"Wait a minute," yelled the first four men in unison, "We didn't get anything at all. When do we get something out of it?!"

The nine men, infuriated with the perceived inequity, surrounded the tenth and beat him. His injuries left him unable to work. He lost his profitable business and had to declare bankruptcy, selling all he owned to cover his medical treatment.

The next night he didn't show up for dinner so the nine sat down and ate without him. It came time to pay the bill and each reached in his wallet and pulled out the accustomed amount - $2, $5, $9, and $12. But the bill was still $80 as before. They suddenly realized they were FIFTY-TWO DOLLARS short of paying the bill! They begged, pleading that the bill should be less since there were only nine of them now.

The restaurateur had no mercy. In order for him to serve his customers he had made long-term commitments to his suppliers, promising to buy a certain amount of products per month. He had also taken out large loans in order to purchase bulk products that allowed him to reduce expenses and provide the lower prices. Even though one patron was no longer present his manpower needs did not diminish. The remaining customers still demanded the same level of service. In short, his costs had remained the same despite one less person at the table. He immediately obtained a court order for services rendered, seizing all the men's possessions and confiscating their belongings. They were left with only the clothes on their backs and the knowledge that they had been their own undoing.

And that, boys and girls, journalists and college instructors, is how the tax system works. The people who pay the highest taxes will naturally get the most benefit from a tax reduction. It is simple mathematics. Just realize that they are also carrying the largest financial burden - a burden which allows the rest of us the luxury of a greatly reduced tax bill. Destroy their wealth through litigation, legislation, or regulation, and they just may not show up at the table anymore.

Then who do you think gets to pay the check?