Before fighting a war, it’s a good thing to know your enemy.
Our federal government spends almost $2 for every $1 it receives. Our national debt is now over $14 trillion, representing almost 100% of our Gross Domestic Product (national income from all sources). How do we fix this before the country tumbles into economic collapse? To most economists, the obvious solution is some combination of reducing spending (including benefits like Social Security, Medicare, and Medicaid), increasing taxes, and increasing inflation.
To most Americans, cable news shows, and even the President, however, the obvious solution seems to be “tax the rich.” A recent survey found that almost 60% of Americans oppose reducing entitlement programs but would rather raise taxes on “the rich” who need to pay their “fair share.”
The class war against “the rich” in the U.S. has reached a level I’ve never witnessed in my life. There was a time in U.S. history that accumulating wealth was seen as virtuous, a byproduct of hard work and the pillars of freedom upon which this country was founded. Not any more.
Let’s set aside for a moment the niggling fact that, even though marginal income tax rates fell for the top 1% of income earners over the past 30 years, their “fair share” of the total individual income tax revenue collected increased from 29% to 40%.
Instead, let’s concentrate on defining “the rich” so we know who the enemy is. A recent Facebook post by someone demanding we raise taxes on the rich defined “rich” as, “If your money works for you and you don’t work for it.”
Let’s look at some potential enemies in the war on the rich.
Holly, age 60, inherited $100 million from her parents. She draws $4 million a year in earnings, of which 50% goes to pay local, state, and federal taxes. She doesn’t hold a job, but spends most of her time championing a number of charities and globe-trotting. Certainly, her money works for her and she doesn’t work for it, so she qualifies as “the enemy.” Those wanting to tax the rich more would agree Holly should pay more, maybe 60%, 70%, or even 80% of her earnings in taxes.
Diane, age 50, owns a small business valued at $2 million. It earns $1 million a year and pays about half that in taxes. Diane lives on $90,000 a year and reinvests the balance in her business. Last year she was able to hire two new employees. Is Diane rich? Should we raise her taxes? If so, she will almost certainly cut back on business expenses and perhaps lay off employees.
Justin, age 35, is a corporate executive who earns $1 million a year. He pays about 50% of that in taxes. He lives lavishly, typically spending more than he makes. With no assets and $100,000 in credit card debt, Justin is basically insolvent. Is he rich? Should we raise his income taxes?
Mary is 75, widowed, and retired from the successful business she and her husband owned. Her net worth of $5 million from the sale of the business is invested in CD’s. They earn 1%, giving her a retirement income of $50,000. Certainly, Mary’s money works for her and she doesn’t work for it, so she qualifies as “the enemy.” Should we raise income taxes on Mary? If we do, we will be raising taxes on most of the people who want to tax the rich.
What do you think? Who are the enemies: Holly, Diane, Justin, or Mary? If there’s going to be a war against “the rich,” it’s important to identify the enemy.