Thursday, October 16, 2008

Spreading the wealth only makes us all poorer

If anything has the power to change the outcome of this election at this late date, it would be Obama's revealing comment to "Joe the plumber" about how he wants to increase taxes on upper-income earners in order to "spread the wealth." This is just a sanitized version of the old socialist slogan: "from each according to his abilities, to each according to his needs." No wonder it has created such a stir.

On top of that, he has been deceptive in saying that 95% of households would receive a tax break. His proposals cut taxes for no one. He proposes to raise taxes for those earning over $250,000, and he wants to raise those same people's taxes on their capital gains and dividend income. Increased taxes on the "rich" will only give them an incentive to work less and shelter more of their income. Increased taxes on the fruits of capital only harms everyone, since it will reduce the incentive to invest on the margin, and investment is the only way that the economy can create jobs and prosperity for all.

Furthermore, he neglects to mention that the top 5% of income earners already pay 60% of all income taxes, which hardly seems fair to begin with. And finally, the tax cuts he wants for the poor and middle class are actually refundable tax credits. That means that those who earn (and work) the least will receive the most. His whole plan is based on the faulty notion that the middle class is the driver of the economy, when it is clear to anyone who understands economics that investment, risk-taking, entrepreneurship and hard work are the main drivers of the economy. Obama's tax proposals will increase the incentives for those who really drive the economy to work less, and increase the incentives for the rest of the people out there to work less as well.

And now comes word that this is only the beginning: Obama's advisor Jason Furman says "He (Obama) believes that one strong option to improve Social Security's long-term solvency is asking people who earn more than $250,000 to pay a little more into the system." In other words, let's tax the rich even more in order to give their money to everyone else. This exposes the truth about social security: it's a redistributive tax disguised as an annuity.

It's hard to be more wrong on such an important subject.


Unknown said...

5% of the wage earner population pays 60% of taxes - the appropriate question is what percentage of total wage income do those 5% earn? Knowing that and allowing for a moderate tax progression and then you could start to talk about fairness.

Also it simply isn't true that people who earn more work harder. Some people work hard to earn a lot, but some work long hard hours for comparatively little. There are of course many who dont work hard but want more pay.

Unknown said...

How do you respond to the likes of Warren Buffet and William Gates (father of the billionaire) who say that tax policies have become totally and unfairly skewed towards the rich?

Scott Grannis said...

Roy, good questions. The top 5% earn 35% of all income and pay 60% of all income taxes. So they are already paying way more than their "fair share" as I see it. And yes, some people work way harder physically than others and make way less, but ultimately your wage reflects your value added, and these days working smart pays a lot more than working hard.

Buffett and Gates are completely wrong on this subject. The rich pay the vast majority of taxes. Something like half of the workers out there pay NO income taxes. We have a tyranny of the majority, and that is a big problem. That's why Obama wants to buy votes by promising a tax cut to 95% of the people.

Unknown said...

Why is no mention ever given to the Bush tax cuts created by the 10% bracket? The lowest income members of society are taxed at such a small rate (if they are taxed at all) that it would seem impossible to provide MORE tax cuts for this group. This is likely why Obama simply promises not to raise taxes, while criticizing McCain for cutting them. Politicians campaigning on a platform of tax cuts have to cut taxes for the wealthier members of society, because there are so few other places left to cut those taxes, right?

Scott Grannis said...

David is right. People on the bottom end of the income scale pay either nothing or very little in income taxes. That's why Obama can't help them with a tax cut; that's why he has to propose a refundable tax credit. This is pure income redistribution, taking from the rich and giving to the poor. Doing this only destroys everyone's incentive to work.