Why Soaking the Rich Doesn’t Work

Filed in Debt, deflation, democrats, inflation, lead, o, recession, revenue, Spot Gold, US Dollar by on November 8, 2010 0 Comments

Last week’s episode of 60 Minutes featured a 13-minute segment on “taxing the rich” in order to cure the government’s debt problem. In addition to being an outrageously biased story, the coverage was filled with more economic fallacies than I can address in a single article. “Progressive” Income-Tax Codes Lead to Volatile Revenues In the opening moments of the segment, correspondent Lesley Stahl explains “eight states have increased so-called millionaire income taxes so far as a way of avoiding drastic budget cuts.” Of course, many of you reading this really mean it when you say theft is wrong, and that a majority cannot justly take an individual’s property, even if they plan on doing something nice with it. On this score, raising taxes is wrong for purely ethical reasons. Unfortunately, most Americans don’t endorse this way of thinking, and so, in the present article, I’ll focus on pragmatic arguments. In the first place, Stahl had to use the qualifier “so-called millionaire income taxes” because not all of the high surcharges kick in at that level. According to this compilation, only two states — California and Maryland — actually have a bracket for people making at least $1 million. The term in practice simply means a high tax rate for people earning big incomes. For two examples, Connecticut’s income tax has three brackets: 3 percent on incomes below $10,000, 5 percent on incomes between $10,000 and $500,000, and 6.5 percent on incomes above $500,000. New Jersey has a similar state-income-tax code, with the first five brackets jumping modestly up through $75,000 in income, but the sixth and highest tax rate kicking in at $500,000. To be sure, someone making, say, $550,000 per year is not on the verge of starvation. Yet it’s not clear that such a person is a “millionaire” either, especially if he is young, has kids, and works in a big city with a high cost of living. The very term “millionaire tax” — which conjures up landed aristocrats who sip martinis on their yachts instead of going to work every day — is misleading. Beyond the deceptive terminology, the policy of “socking it to the millionaires” actually exacerbates the boom-bust cycle in state-government revenues. As I explain in this policy paper, what …

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Why Soaking the Rich Doesn’t Work

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