Taxing the “rich” and “redistributing” income

Obama is campaigning* to redistribute the wealth by having the “rich” pay their “fair share.” In Detroit, he said the following to a bunch of UAW workers:

THE PRESIDENT: Here is the good news: We can solve this problem. All Congress needs to do is pass a law that would prevent a tax hike on the first $250,000 of everybody’s income — everybody. (Applause.) That means 98 percent of Americans — and probably 100 percent of you — (laughter) — 97 percent of small businesses wouldn’t see their income taxes go up a single dime. Even the wealthiest Americans would still get a tax cut on the first $250,000 of their income. But when they start making a million, or $10 million, or $20 million you can afford to pay a little bit more. (Applause.) You’re not too strapped.

So Congress can do that right now. Everybody says they agree with it. Let’s get it done. (Applause.)

So when you put it all together, what you need is a package that keeps taxes where they are for middle-class families; we make some tough spending cuts on things that we don’t need; and then we ask the wealthiest Americans to pay a slightly higher tax rate. And that’s a principle I won’t compromise on, because I’m not going to have a situation where the wealthiest among us, including folks like me, get to keep all our tax breaks, and then we’re asking students to pay higher student loans. Or suddenly, a school doesn’t have schoolbooks because the school district couldn’t afford it. Or some family that has a disabled kid isn’t getting the help that they need through Medicaid.

So, quick review – we tax “the rich”, leave the middle class alone, and the poor are better off. Right?

Uh …nope.

First of all, as we’ve reviewed many, many times, a couple making $250,000 isn’t rich.

Next, taxing the rich does affect the middle class. From Edward Conard’s book “Unintended Consequences” :

If the government had taxed the rich and redistributed a dollar of their income- both the forty cents of investment and the sixty cents of consumption [the rate of income use among the rich] and if the middle class had captured their proportional 40 percent share of that dollar [the percentage the middle class “gains” by investments by the rich], they would have received forty cents of redistributed income. Income redistribution leaves the middle class significantly worse off. They give up sixty cents from investment to gain forty cents of redistributed income. Its especially bad for their children, who will share disproportionately in future benefits from investment.

The poor, on the other hand, DO gain from income redistribution. The poor garner their income mostly through government programs, not investment, or the benefits of investment from the rich. It is the middle class who suffers when the rich are taxed more.

The middle class is no better off taxing the rich and distributing a share of their income to the poor than they are paying the poor’s share themselves. As noted, leaving a dollar with the rich and letting them invest it on behalf of the economy is worthy sixty cents to the middle class. If the middle class allowed the rich to continue investing, rather than redistributing their money, and paid the poor the share of the income redistribution they would have received-twenty cents- it would leave the middle class with forty cents, the same amount they would have gotten from redistribution. Taxing the rich and redistributing their income comes at the expense of the middle class.

It’s even worse to the middle class when the SUPER rich are taxed at a higher rate, because they “consume” even less of their income and invest more.

The dollar they give away largely would have funded investment and underwritten the risk necessary to create new products, lower costs, and long-lasting jobs. Accumulating more equity to underwrite more risk is the very thing the economy needs to grow employment.

Taxing the rich is going to slow down the economy, which is going to REALLY hurt the middle class. The money – oops, I mean the “revenue” – is going to disappear down that giant suck-hole called Washington, while Obama golfs, vacations in Hawaii, and Michelle takes their daughters on ski-weekends in Vail.

All the while, lecturing us on “fairness.”

*Yes. He’s still campaigning. I will not call what he is doing – “leading” because it is not.

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2 Comments on “Taxing the “rich” and “redistributing” income”

  1. Mind. Boggling…

    I tried to explain this to my sister. She is in a two income household. Her hubby decided (prior to the election) to quit his six figure job as a contractor for the military, and become a deputy for the sheriff’s dept (life-long dream of being an LEO). She is now bitching about their taxes, because hey, he worked that other job LAST year, and they won’t have the income to cushion the blow next year.

    Yeah, she thinks Obama is Teh Shi’te.

  2. Car in Says:

    @@. Poor thing.

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