Taxing the Rich Doesn’t Solve Our Problem

In an article published in April, the Wall Street Journal said that “Obama targets the middle class while pretending to tax only the rich.”  I’ve heard this argument several times in the last week: raising taxes on the rich doesn’t solve the federal government’s deficit problem.  In fact, if the government were to take every dollar that each rich person makes, it would only raise about $1 trillion.  “The mathematical reality is that in the absence of entitlement reform on the Paul Ryan model, Washington will need to soak the middle class—because that’s where the money is.”

We all know that putting a 100% tax on incomes over $250,000 would be a HUGE problem for the economy (because there would be absolutely no incentive to work once you’ve crossed that threshold), so you’d probably end up re-defining what “rich” is to include people further down the income ladder… i.e. people who are considered “middle class” right now.

Along these same lines, here’s an interesting video from the Center for Freedom and Prosperity, discussing Seven Reasons Why Tax Increases Are the Wrong Approach:

(If you are having trouble viewing this video in your RSS reader or email, click here to see it in your browser)

Question: Do you think we’ll end up taxing the middle class to pay for Medicare, Medicaid, and Social Security?  Do you think your taxes will go up?

  • Broc Middleton

    Here is some history about Voodoo (Reganomics) Economics:

    http://youtu.be/SwfNNHy5aOQ

    Voodoo Economics:

    http://youtu.be/k71DYM20WRM

    • http://bobewoldt.com Robert Ewoldt

      Broc, I just watched the Rachel Maddow clip on Reaganomics, and I have to take issue with one of her implications. One of the points in the video that I posted here was that higher taxes provide a DIS-incentive for work. Rachel Maddow complained (several times in her clip) that the income of the rich went up wildly in the decade following the implementation of Reaganomics, and juxtaposed this to the poor. She’s missing the point! Because the tax rates went down, people started working more! They started producing more! This is why their income went up!

      And, do you know what? Because their incomes went up, the taxes collected from them went up to! This was one of the points that I’ve made over and over to you. Higher taxes DECREASE tax revenue (or, at the very least, don’t raise as much revenue as expected), because people CHANGE THEIR BEHAVIOR as a result.

      That’s what Rachel Maddow’s own graphs show… but she doesn’t draw that conclusion.

      Why didn’t the incomes of the “lower class” increase during the decade following Reaganomics? Because they had no incentive to work harder; their tax burden was already at 0.

      • http://pulse.yahoo.com/_KBY52OYW6XWECTCG3BUNJW6BU4 Broc

        You watch the 2nd clip?

        • http://bobewoldt.com Robert Ewoldt

          Broc, I took a look at the second clip, and here’s what I found: the central claim of the first half of the clip is that income trends switched after the Reagan era. He said that the bottom 90% of people saw their income increase an average of 75% from 1950-1980, and then 1% from 1980-2008. I did some digging, to see if this was actually correct. I got income numbers from the U.S. Census Bureau, made a spreadsheet, and found that the average income of the bottom 90% increased an average of 1.44% per year before 1980, and 1.60% on average between 1981 and 1989, and then dropped to a 1.22% average from 1990-1999.

          Similarly, the richest 10%, over the same period, saw their income rise an average of 1.63% increase between 1967 and 1980, 2.12% between 1981 and 1989, and 1.80% between 1990 and 1999. Over the ENTIRE period (1967-2003), the richest 10% saw their income rise 0.36% faster each year than the bottom 90%.

          This guy either got bad numbers, or he’s blatantly lying.

          • http://pulse.yahoo.com/_KBY52OYW6XWECTCG3BUNJW6BU4 Broc

            If Reganonimc was so successful, why did the deficit explode? By your thoery the lower tax burden should have stilulated the economy and created jobs which should have INCREASED revenues and help lower the deficit, but that is not what happened?

          • http://bobewoldt.com Robert Ewoldt

            Here’s the thing… we had massive tax cuts in 1981, and from 1981 to 1990, tax revenues remained the SAME (see chart at http://www.usgovernmentrevenue.com/downchart_gr.php?year=1902_2015&view=1&expand=&units=p&log=linear&fy=fy12&chart=F0-total&bar=0&stack=1&size=l&title=&state=US&color=c&local=s). So, in fact, you DID have a stimulation of the economy and more jobs. However, the deficit exploded because the government didn’t control their spending (hmmmm… I see a pattern here). Actually, what the tax revenues of Reagan show is this… whether you have a 90% highest marginal tax rate or a 35% highest marginal tax rate, you’re going to bring in the same amount of revenue.

            So, why are we talking about raising taxes? Sure, you might raise more revenue for a few years, but ultimately, rich people find ways to shelter their income, or they don’t produce as much.

          • http://pulse.yahoo.com/_KBY52OYW6XWECTCG3BUNJW6BU4 Broc

            No I don’t believe his numbers are bad I believe you guys are talking about 2 different groups of people. You are both talking about the bottom 90% of earners while he was discussing the top 1%. You both were not talking about the top 10%, he was talking about the top 1%.

            I completely disagree with your premise that if rich people can’t hide their wealth in tax loop holes or if taxes aren’t cut that they will simply give up and stop earning, I would be willing to “risk” the fact that rich people will give up getting richer because they don’t like the tax code. Once again Clinton years…

            I had a did have a separate thought though, so your tax plan will only work if government spending goes down dramatically and stays down…do you really believe that democrats will stop pushing their economic policy and agenda so Republicans can work in a vacuum and get everything they want? Seriously you have to know that will never happen unless Republicans have full control of the Congress and White House and EVEN THEN you have to pray that Republicans don’t get all stupid like they did in the Bush administration did and spend again. So since compromise is the only our government continues to run isn’t it wise to advocate for a economic policy that could actually gain Bipartisan support like a Simpson-Bowles plan which cuts spending but also increases taxes in targeted areas.

          • http://bobewoldt.com Robert Ewoldt

            I wasn’t talking about the top 1% of earners; I was talking about his numbers on the bottom 90%. They were WRONG. He said that, before Reagan, the bottom 90% of people had their incomes increase 75%, and then after Reagan, only 1%, and that’s blatantly false. On this point, I disagree with you.

            I do agree with you about rich people, though. If you raise taxes on them, or close loopholes, they will not completely stop getting richer (though, if you raise their tax rate to 90%, many of them WILL produce less, because there’s less return for them). However, there is a point where they will take their business elsewhere. We live in a competitive world, and if they can live in New Zealand and earn $1,000,000 per year, or live in the U.S. and make $500,000 per year, they WILL move to New Zealand. Maybe not in the first year, or 2 years, or 5 years, but they will move. Rich people are much more mobile than those in the middle class and lower class. We’ve seen this happen in states like Connecticut and New Jersey, where the rich have migrated out of those states to lower-tax states like Florida and Texas (see this article: http://www.nj.com/business/index.ssf/2010/02/nj_loses_70b_in_wealth_over_fo.html). You can’t make the argument that tax policy doesn’t drive behavior.

            Furthermore, we’re not just talking about individuals. We’re also talking about companies. If you run a multinational company, and you have a choice between investing in a country where your capital is taxed at 35% or a country where your capital is taxed at 15%, it’s a no-brainer where you’re going to invest. TAXES DRIVE BEHAVIOR. If the U.S. is going to continue to be competitive in the world, we have to have a competitive tax structure.

          • http://pulse.yahoo.com/_KBY52OYW6XWECTCG3BUNJW6BU4 Broc

            I would have to do some research on your numbers vs. his numbers and then compare and well….its Saturday and NOT raining for once so that will have to wait……

            I dont think anyone is advocating to a return of 90% tax rates. However there IS a push for a increase in tax revenue whether that is done through closing loop holes or increasing the tax rate. Sure in your simple New Zealand vs. US argument you could say that it might be more attractive to move to New Zealand but then again…What nation is No. 1 at consuming stuff? I dont think its New Zealand, so if you are going to move there you will take on additional cost to ship you product across an ocean. It is also alot easier to move states than move nations…honestly business dont want to pay any taxes, if the choices were left to businesses there would be zero regulation zero oversight and zero taxes,I dont want to pay taxes either for that matter but we adapt to what is going on around us. Besides since the tax rates have gone down from 90% to now 35% maybe they should just happy… especially considering that fact that most business dont pay anywhere NEAR that 35% anyway on average its about 15%. Which is why they are looking to close those loop holes.

          • http://bobewoldt.com Robert Ewoldt

            By the way, I don’t know if you’ve signed up for a Disqus account, but it’s really cool; not only can you get notifications when someone replies to you, but you can reply to them by replying to the email notification. Also, Disqus seems to be a comment system that a lot of other blogs are using, and you use the same account to comment on every blog that has it.

    • http://bobewoldt.com Robert Ewoldt

      If you’re saying that “trickle-down economics” or “Reaganomics” doesn’t work, would you say that we should go back to pre-Reagan tax rates? If Reaganomics didn’t work, why doesn’t anyone advocate that we should go back to a 90% highest marginal tax rate?

      Or, are you saying that Reaganomics DID work, but we just cut taxes TOO much? And ideal tax rates are somewhere between 35% (where we are now), and 90% (where they were before Reagan)?

    • http://bobewoldt.com Robert Ewoldt

      Liberals are (understandably) hard on Reagan, because if they recognize that Reagan did something good, then they have to change/tweek their worldview. Here are some facts:
      1. The rate of economic growth during the Reagan years was an average of 3.2%, as opposed to 2.8% before, and 2.1% after.
      2. Real median household income rose by $4,000 in the Reagan years–from $37,868 to $42,049. In the eight years prior to Reagan, household income was flat, and in the 1990s, median household income fell by $1,438 following tax increases in 1990 and 1993 (under Bush 41 and Clinton).
      3. From 1981-1989, the U.S. produced 2 million jobs per year, 17 million jobs overall. Since Reagan, it has averaged only 1.3 million per year.
      4. Unemployment under Reagan went from 7.6% to 5.5% when he left office.
      5. Under Reagan, worker productivity grew at a 1.5% annual rate. Under Clinton, it was 0.3%.
      6. In 1981, when Reagan came to office, there was double-digit inflation. By Reagan’s second year, it had been cut in half. When he left office, CPI inflation was at 4.1%.
      7. Interest rates on mortgages went from 15% when Reagan began, to 8.2% when he left office, on its way down to 6.0% in 1993.

      Tell me again… how does Rachel Maddow say that things didn’t improve under Reagan?

      • http://pulse.yahoo.com/_KBY52OYW6XWECTCG3BUNJW6BU4 Broc

        Numbers huh…..(http://clinton5.nara.gov/WH/Accomplishments/eightyears-03.html)

        President Clinton’s Record on the Economy: In 1992, 10 million Americans were unemployed, the country faced record deficits, and poverty and welfare rolls were growing. Family incomes were losing ground to inflation and jobs were being created at the slowest rate since the Great Depression. Today, America enjoys what may be the strongest economy ever.

        Strong Economic Growth: Since President Clinton and Vice President Gore took office, economic growth has averaged 4.0 percent per year, compared to average growth of 2.8 percent during the Reagan-Bush years. The economy has grown for 116 consecutive months, the most in history.

        Most New Jobs Ever Created Under a Single Administration: The economy has created more than 22.5 million jobs in less than eight years—the most jobs ever created under a single administration, and more than were created in the previous 12 years. Of the total new jobs, 20.7 million, or 92 percent, are in the private sector.

        Median Family Income Up $6,000 since 1993: Economic gains have been made across the spectrum as family incomes increased for all Americans. Since 1993, real median family income has increased by $6,338, from $42,612 in 1993 to $48,950 in 1999 (in 1999 dollars).

        Unemployment at Its Lowest Level in More than 30 Years: Overall unemployment has dropped to the lowest level in more than 30 years, down from 6.9 percent in 1993 to just 4.0 percent in November 2000. The unemployment rate has been below 5 percent for 40 consecutive months.

        Lowest Inflation since the 1960s: Inflation is at the lowest rate since the Kennedy Administration, averaging 2.5 percent, and it is down from 4.7 percent during the previous administration.

        7 Million Fewer Americans Living in Poverty: The poverty rate has declined from 15.1 percent in 1993 to 11.8 percent last year, the largest six-year drop in poverty in nearly 30 years. There are now 7 million fewer people in poverty than there were in 1993.

        Thats just one section of economic numbers…Perhaps both models are capable of achiving success but the Clinton’s approachs tends to help those who actually need it.

  • http://pulse.yahoo.com/_KBY52OYW6XWECTCG3BUNJW6BU4 Broc

    P.S. Not a fan of the new comment posting system

    • http://bobewoldt.com Robert Ewoldt

      I’m trying out a new system. I’m going to let it run for a little while, and then maybe I’ll change. I’ve been very impressed with it on other sites. I think I need to tweek it to get it to run properly on my site. BTW, I don’t know if you got email notifications, but I commented on your other post.

    • http://bobewoldt.com Robert Ewoldt

      What don’t you like about the new comment system?