People do! There have been extensive conversations over the last year around the different perspectives that each party operates on in terms of taxes. One of the major reasons that, when I did choose to be a part of a political party, I couldn’t support the Democratic party, was their outlook on economics. The ideas of wealth “trickling up”, consistent increases in regulation of the private markets, and redistributing wealth are all against the very core of what I believe, and in the case of trickling up wealth, against logical reason. In many of my arguments with those on the left, I have brought the subject of this article up, offering it as a reasonable assessment of where there is a fatal flaw in their plan. I never get a response after that. The subject gets quickly changed, or in forums I am simply never answered by that person at all. So I am going to present the argument again, and explore the concepts. I welcome any challenge to my thoughts, as I want to know if there are things I am missing…
What I am focusing on here is the over-reaching sentiment that the “wealthy must pay their fair share.” This is the crux of the argument for a progressive income tax and it is a gigantic part of the faulty (in my opinion) premise that corporations and businesses must contribute more heavily to the tax burden in the United States. I have marveled at this sentiment for many years. I have again and again challenged the logic of such a sentiment. I have offered why I think it is faulty. I have explained why it doesn’t work. And I have never been answered in a way that makes me even consider the other train of thought as logical. So I want to talk about it.
There is, of course, the beginning argument that the wealthy must pay their fair share. I understand some of the premises. There is the train of thought that the wealthy benefit more from society, that they would not be unable to accumulate their wealth without what society provides, such as infrastructure, educated employees, and a court system that protects them. Yet it appears to me that the wealthy in America pay more than their fair share. In an article back in the beginning of 2009, I shared the following (based on 2006 tax revenue data):
|Percentiles Ranked by AGI||AGI Threshold on Percentiles||Percentage of Federal Personal Income Tax Paid|
|Note: AGI is Adjusted Gross Income
Source: Internal Revenue Service
So what we see there are the facts about who pays what percentage of the taxes in America. The top 1% of American earners pay roughly 40% of federal income taxes. The top 10% pay 70% of the federal income taxes. The bottom 50% of wage earners pay 3%. Let’s look at this another way. Let’s apply those percentages to to the average federal income collected in the United States(1 Trillion in 2006) and the number of taxpayers (133,209,000 returns filed in 2006). That gives us these numbers (pardon my math as I do this at 2:00am):
|% of Total Paid||$’s Group Paid in Taxes||Number of Returns per Group||Average Income Tax Paid Per Taxpayer in this Group|
|Top 1%||39.89%||398.9 Billion||1,332,089||$299,454|
|Top 2% – 5%||20.25%||202.5 Billon||5,328,358||$38,004|
|Top 6% – 10%||10.65%||106.5 Billion||6,660,446||$15,990|
|Top 11% – 25%||15.48%||154.8 Billion||19,981,341||$7,747|
|Top 26% – 50%||10.74%||107.4 Billion||33,302,233||$3,225|
|Bottom 50%||2.99%||29.9 Billion||66,604,467||$449|
It seems to me that the top 1% of earners in this country pay 667 times as many dollars for the exact same services provided to the bottom 50%(actually for less services since they aren’t getting any welfare or social services). So explain to me exactly how it can be said that the wealthy in America are not paying their fair share? They don’t get better roads for all that extra tax money they pay. They don’t get better health services provided by the government for all that extra tax money they pay. In fact they don’t get better anything from government for providing 667 times as much money as the bottom half of the earning scale. They get less. The wealthy in America are paying far more than their fair share. It is just that the progressive movement in America like the idea of being philanthropic with other people’s money.
But that is just the justification for what the left wants to do. They create a situation where the poor in America believe that the wealthy in America don’t pay their fair share, when they obviously pay the lion’s share of the income taxes. And those numbers of where the threshold is for the earners isn’t quite so high. An earner who makes $108k qualifies for the top 10%. Not exactly stinking rich. And certainly not in a position where they are silver spoon kids. So unless you can provide me with some sort of alternative information, I simply refuse to accept the argument that the wealthy don’t pay their fair share. They are paying their share, and everyone else’s share too.
But that isn’t the point of this article. I have made that argument before. The point of this article is the false claim that taxing the wealthy heavier than we already do and taxing the corporations is simply asking those who have more to give more. Because to believe that, in my opinion, is to ignore the realities of the world. And those realities are this:
First, the wealthy are business people. VERY few of the wealthy are silver spoon kids. They are where they are because they have a business of some sort that has earned them enough money to qualify. Remember the top 1% is qualified at $388k, not millions per year. Wealthy yes, but not “stinking rich.” They are there because they earned it by taking a risk, starting a business, and making it work. So when you are talking about taxing the wealthy, you mean you are talking about taxing a business owner. As such, for the purposes of this discussion, we can recognize the fact that the wealthy and corporations are basically the same thing in terms of taxes. If you tax a wealthy man, you are essentially taxing the business that made him that way.
Second, and this is the important point, you cannot tax a corporation. Try as you may, you simply cannot do it. A corporation exists to provide a good or service for a price. When you tax a corporation, do you think that they simply shrug their collective shoulders and say, “eh, I guess we will have less profits this year”? Of course not. They increase the costs for their good or service to pay the increased taxes. And that means that the cost is…. wait for it…..
Passed on to the consumers!
So when you talk about taxing the rich, you are talking about taxing the consumer who consumes their products. You aren’t going to take a dime out of the corporation’s pocket. They just raise prices. And yet, as you continue to pass these bills to punish the big evil business people, what you are actually doing is punishing the end users of their products, not them. And then there is this giant wonderment that the economy doesn’t improve. The job markets don’t improve. The quality of life doesn’t improve for those poor wretches in the bottom 50% that you endeavoring to help.
Corporations work on the principle of offering their goods or services based on the cost of production. Increased taxes increase the cost of production and thus the cost of the good or service. When you increase the cost of operations for a company, they have a couple of choices. They can increase the cost of the good or service they provide. This is the most common course. Or they can trim the costs of production in other ways. This means the do less charitable contributions, less expansion (and thus creation of jobs), or reduce the workforce. Or they can simply move their operations overseas where labor is cheaper and there are not as many restrictive regulations that have no impact other than raising costs. These are the options. Whether the cost increases for the good or service, or the company downsizes, limits expansion, and stops voluntarily helping the community, I fail to see how those on the progressive side see this as a positive thing for the poor in America.
The poor are left to either not have jobs or to pay more for their purchases (ironically they must pay more with less money since jobs aren’t there and if they are wages are lower). It is this fatal flaw that continues to perplex me as we discuss the concept of increasing the tax burden on the top end. There is simply no way that the burden is simply not shifted to the working class once again. Fortunately for the Progressive politicians, most people fail to think it through in this way and actually understand that this is hurting them, not the big bad businesses. The class warfare rhetoric actually works so long as the poor never realize how the economics actually play out.
And what we have seen is a steady downward spiral because of this flawed concept. Punishing the wealthy continues to have a negative effect, not on the wealthy, but on the consumers. As a result the consumer falls more and more into a situation where they expect help from government. Class envy garners more calls for increasing the burden on the wealthy which results in declining economic conditions for the poor which results in more class envy which results in more calls for increasing the burden on the wealthy. It is a vicious circle that has steadily brought down the quality of life for the middle and lower classes in America.
Now I don’t fall into the camp that believes this is an accident. I believe that ultimately the federal government’s intention is to continue to create greater and greater dependency on them. So that is their purpose. They are not trying to help the poor and middle class to get better off. They are intentionally trying to ensure that those groups simply become more and more dependent on government help. And before you blow that off as a silly statement, ask yourself this:
The government doesn’t do anything that doesn’t benefit the government. They have some of the most brilliant minds in the country at their disposal. So I submit that they are well aware of doing the math on this and realizing that a tax on the wealthy gets passed to the poor. To believe that they don’t understand this is to believe that they are utterly incompetent in terms of evaluating economic impacts. So the federal government is one of two things. They are either complete idiots not capable of running the country OR they are absolute geniuses to have played the bottom 50% like a fiddle and tricking them into believing they are taking actions that help them. Which do you really think is the most likely scenario? Incredibly stupid or evil geniuses? I think you know where I stand.
So there is the discussion. I have painted this issue with a purely economic brush. The discussion isn’t about the inherent usurpation of rights or the moral perspective around taking more from one to give to the other or even the principles we stand on as to why this is all wrong. This is about economics and how the premise is faulty. The bottom line is that increased taxes on the wealthy are simply passed on to the consumer, hurting the middle and lower class. That is how it works in my perspective. What am I missing progressives? What magic factor has eluded me for all these years in understanding how increasing taxes on the wealthy and corporations hurts the middle and lower classes instead of the upper class?
I know I come across extremely opinionated on this subject, and I am. But I had to give those on the left the chance to explain this to a simple ex-soldier who apparently cannot grasp the concept and why it could work.