…"If we destroy the rich, who will keep the economy, the jobs, going."…
Help from anyone here?...
Blowhard time: You’d have to put it your own words, but here are some thoughts.
1. In the earlier years of FDR and the New Deal, income tax rates were raised to what today would be deemed as confiscation. Yet, it also coincided with greatest sustained economic boom in the history of modern capitalism, from the start of WWII through approximately 1972. By the 1970s, the United States had the most uniform distribution of wealth and the largest middle class by percentage of population in all the industrialized world. Part of that boom can be explained by the state of the world economy and the US dominance coming out of the war, but today we are starting to see the skewed wealth distribution pre-depression and the resulting effects. High personal income tax rates do not correlate with national economic strength and growth.
2. Raising tax rates on the wealthy will not destroy the rich, or even dent their lifestyle, rather it will only decrease the rate of their accumulation of wealth. For example, assume for simplicity someone making $300,000 of taxable income who pays a 33% effective rate or $100,000 in taxes: Increase their effective rate to 40%, their tax bill has increased to $120,000 or an increase of $20,000. The $20,000 hardly diminishes their lifestyle at all. (see Point 4 below to see where that $20,000 of tax saving ends up)
3. People often say high tax rates on the wealthy punish work. At the extreme it is certainly true. But practically it is not. People work because work is rewarding, not just monetarily so. More importantly, countering the ‘flat tax’ arguments, people of wealth have both more at risk and use more than their fair share of the services provided by government as well as having specific arms of the government which support their interests. Police spend more time patrolling their neighborhoods, more money is invested in wealthy area schools, in part our military is there to defend not only our ideals by our economic interest. The vast majority of the cases in the federal court system are business to business, corporation to corporation, certainly in terms of time, dollars and resources utilized. Large sections of the State Department and the Commerce Department support domestic and international business interests. The SEC certainly provides no direct value to the waitress at the Diner. Finally, it is not unreasonable to expect higher rates on the wealthy when if you think of tax rates as insurance. The higher the dollar value of the assets you are insuring, the higher your premiums.
4. Most importantly, in a globalized free market economy lower tax rates do not necessarily help the United States. This is obvious if we all just apply a little common sense. As an investor, you direct your investment dollar to those assets which generate the highest returns. As an investor, you really don’t care where the money goes, just make the most relative to risk. Instructively, for many years the best returns could be made investing in foreign stock or foreign stock funds, because that’s where the growth was. So you invest in foreign assets, lowering their cost of capital, permitting them to build up their industrial base taking market share and jobs and economic strength away from the United States. In a global economy, across the board lower rates on the wealthy – instead of targeted reductions on investment returns in US assets - only harms the United States. Investors are rational, profit-maximizing creatures, and they should not and do not care if those returns come from US investments. .
5. Warren Buffet, probably the most famous and perhaps successful investor in the world, says that the class war is real and “my class is winning.” He believes that the current low tax rate on investment is horribly wrong.
6. Finally, the history of western civilization shows that democratic republics cannot be both stable and have massive income inequality. As an example, look to South America (explaining its history would take too long however).
Today, I’m a commie pinko liberal. In the 50s you would not have been able to tell my positions from Eisenhower’s. |
