Do We Need To Raise Taxes On The Wealthy?

I submitted an op-ed article to the San Antonio Express-News about this issue. It looks like it will not get printed. In it, I disagreed with the idea that we need to raise taxes on the wealthy and upper income groups. The article that I responded to was Millionaires and their tax request.

What I submitted is below. One thing I should add is that economist Veronique de Rugy wrote at the Reason magazine site the federal government has never been able to collect 21 percent of GDP in tax revenues. Even in the 1950s when the highest tax rate was over 90%.

"I disagree with investment banker John Kortenhaus who wants to increase taxes on the wealthy (“Millionaires and their tax request,” April 2).

For one, he says “trickle-down” economics doesn’t work, that the spending of the rich won’t create jobs. But we would have to compare this to how well government spending creates jobs and some economists are skeptical of that, too. There is no guarantee that the federal government will spend the money wisely.

Then he says “the wealthy ought to pay progressively higher percentages of their incomes in taxes because they benefit more” from government. It might be true the rich get more from government, but that does not necessarily prove progressive taxes are a good idea.

Let’s look at a flat-rate tax system. With a tax rate of 20%, someone earning $100,000 pays $20,000 in taxes, ten times what someone who earns $10,000 pays.

That seems equitable: You make ten times as much, so you benefit ten times as much from government. Paying ten times as much in taxes covers your benefits.

I am not aware of any scientific study that proves the rich receive disproportionate benefits from government.

He also says “many inherited their wealth.” But according to the book The Economics of Macro Issues, “current living standards are chiefly determined by the incomes people have earned for themselves” and not inheritance.

He then also says some inventors are lucky and don’t deserve their high incomes. But how would the government figure out who was lucky and should have to pay progressive taxes and who was not lucky?

I don’t think they could and making all high-income people pay progressive tax rates and punishing some who don’t deserve it seems like using guilt by association.

Maybe someone like Bill Gates could not have gotten so rich one-hundred years ago since there were no computers.

This only shows that all of us are much better off than people once were. It does not tell us that the rich have disproportionately benefited from progress. The typical low-income person is also much better off now, too.

Where does all this progress come from? Partly from entrepreneurs, some of the people Mr. Kortenhaus wants to tax so much.

Recently the eminent economic historian Deirdre McCloskey said around the year 1800 economic growth took off because societies started to treat entrepreneurs, their innovations and their drive to earn high incomes with dignity.

High taxes on the rich might hurt the innovation that benefits us all. Is punishing them a good vision for America?

We have income mobility, too. From 2001-2007, 44% of the top income earners fell out of the top bracket (top fifth). High incomes may be fleeting. Why punish some for having a good year with extra-high taxes?

Relying too much on the rich for tax revenue can hurt budgets in a recession. The Wall Street Journal recently reported that high income earners saw even bigger losses than everyone else in the recession. That partly explains the big deficits in many states.

In 2007, 37% of federal income tax revenue came from the top 1% of income earners. If we tried to get even more revenue from them, when the next recession hits and they see larger than average income drops, the federal deficit will grow even more.

I do agree with him on eliminating some deductions and loopholes that allow the rich to pay less in taxes, but let’s be careful before we make the system even more progressive.

Finally, full disclosure: I am not a millionaire even though the one car I own is a Honda Civic."