One of the political happenings that has been at the forefront recently is Barack Obama’s new jobs plan. He wants to inject stimulus to the tune of $447 billion and the Republicans don’t like it. Naturally, most people would want to know where that much money is going to come from. One of Obama’s ideas is what is known as the ‘Buffett Rule,’ after Warren Buffet’s Op/Ed piece “Stop Coddling the Super Rich” in the New York Times about how it is unjust for the rich to be paying a low effective tax rate. It aims to tax millionaires more. Nevada senator Harry Reid has made this more concrete, calling for a ‘surtax’ that would ask millionaires to pay an additional 5 percent in taxes. After looking at some facts, hearing about ‘Occupy Wall Street’ and understanding different perspectives, it all seems to be quite populist.
The argument against tax increases on millionaires is twofold. First of all, the millionaires don’t pay an exorbitant amount compared to others directly below them. For example, the government doled out $1.08 trillion in tax credits last year and only 8 percent of that was for corporations. One of the most talked about loopholes in the tax code is for corporate jets and they account for only .03 percent of the total.
I know people would hate to hear this and I do too, but most of the credits are gobbled up by the upper-middle class. We’ve all heard the conservative view about how the millionaires are creating an abundance of jobs for the American people and how tax increases will just hamper them, but that isn’t true. Small business owners earning around $250,000 are the ones creating jobs, they are the ones receiving a majority of the tax credits and they are the ones who will be hurt the most by tax increases. Obama has said that they will be spared and he has his mind on increased taxes on the millionaires but that will not bring much in revenue.
In terms of generating the most revenue, we could just close loopholes that the upper middle class benefit from and then just raise taxes on them, but that would be counter-productive. The rich pay 45 percent of the income collected by the government and that’s because they have been quite successful in the recent years. People say that they deserve it and shouldn’t be penalized for ‘working harder than others’ but in the aftermath of the Great Recession it’s been said that their profits have come at the expense of the middle class so they should be morally obligated to prop up our 1 percent economy. As much I want to support that, it seems vengeful and is just plain old populism.
The second reason why radically raising taxes may not be the best idea is what is known as ‘The Race to the Bottom.’ For example, let’s look at Britain. Britain has a top marginal tax rate of 50 percent and economists have said that it has negatively impacted their economy. The rich are mobile and can shift their assets or operations to other countries with lower tax rates, or “the bottom.” Many companies are shifting from the United Kingdom and the Euro Zone to Ireland where the corporate tax is 12.5 percent. So you can see that raising taxes on the people who prop up your economy and can also be mobile can have deleterious effects.
It’s quite tricky, really. You can raise taxes to Sweden’s 57 percent and ‘The Race to the Bottom’ will kick in. You can raise taxes marginally in the manner that Harry Reid has proposed and it may bring revenue in, but the small business owners are meatier. But taxing them is definitely detrimental.
Now don’t get me wrong, I’m all for the rich paying more because they can and because I don’t want any increases for me and my family. I’m just saying that the economics may not work out.
Nikhil Rao is a Collegian columnist. He can be reached at [email protected].
Nikhil Rao • Oct 15, 2011 at 9:44 am
What you’ve said is quite apt in some respects. I don’t know how all the math works out regarding your statistics, but I see what you’re saying. I also think that the calculations are quite complex and not all your suggestions will have favourable effects (although I do concede that I’m not informed enough). A lot of people have problems with the system of capitalism itself so they would find no merit in some of your arguments. Anyway, I think that itself always good to look at the broader perspectives before coming to a conclusion and that’s what I’ve done.
Robert R. • Oct 13, 2011 at 2:56 pm
As a UMASS alum from the early 90’s, I sometimes follow the Daily Collegian. I’m 40 now and have a different perspective than in my college days. I am pleasantly surprised today by the change in rhetoric of some of the columnists, reflecting a much more realistic world-view than the faded 60s liberal nonsense that was spewed on campus non-stop when I was a student. As students, it is your job to study a situation and come to your own conclusion, not to regurgitate the political agenda of your professors.
The tax situation is probably the most important issue in the United States today. It is the root of virtually every other national policy debate as it is the proverbial cash register for the government’s operations. The tax code is hopelessly broken.
Rich people should not have to pay more because they can – this is the wrong way to approach the situation. You may be surprised to find out that more than 40% of working Americans pay NO federal at all and many of those people actually receive money back! You may be surprised that the top 1% of the nation pays roughly 70% of all income taxes and the top 10% pays something like 90% of all taxes. Put in that context, one could argue that the rich, and the not so rich, are paying quite enough taxes and that tens of millions of Americans are not pulling their weight.
These issues are so complex intertwined with history and economics that one could write a book about it. Here are some basic things to consider: traditionally, the federal government takes in the equivalent of about 17-18% GDP for its operations. Today, that number has ballooned to about 27% or so. This means we have a bloated bureaucracy that costs many hundreds of billions more than it should, all at a time when it is less effective and less representative of the majority of the country than ever. Social Security is currently projected to be insolvent by 2017 and still no long-term fix has been resolved.
In short, government services and costs on the federal, state and local levels are too large a burden at this time in history. The American prosperity that many of us have come to expect has been built largely on debt, consumerism and living beyond our means. Much of it was a fantasy, I hate to say, and now we are paying for it. Governments are tapped out and are looking for more cash to continue to grow. Between federal, state and local property taxes and 401k contributions, you can count on roughly 40-45% of your earned income going somewhere other than your pocket. That approaches the taxes paid in other countries cited by the author!
The middle class (what is left of us) is an illusion, and I can tell you from personal experience, can barely survive on $200,000 per year living in the big coastal cities and suburbs. The answer is simple, but will be painful to implement. Taxes need to be LOWERED across the board and services provided by the government need to be dramatically reduced. It will cause pain to many, but will eventually lead to more economic activity and prosperity.
First, corporate taxes in the good ole’ USA are the highest in the western world! This is an absurd circumstance for the home of capitalism. As a result, most large corporations who would contribute many billions of dollars collectively, either move their financial operations to other countries or take advantage of ridiculous corporate tax loopholes. Second, America is a consumer society for better or worse. If tax tiers were meaningfully lowered or eliminated in favor of a low flat tax (say 15%), consumers would begin spending meaningfully again, thereby supercharging the economy. Third, consolidate government agencies and eliminate redundancies – there are currently 77 or so federal agencies that award international scholarships. Why can’t there just be one? Consolidate law enforcement – why can’t ATF, FBI, DEA, Border Patrol, Secret Service, Homeland Security all be under one roof? And so on and so on. Fourth, at the state and local level, cops, firefighters, teachers, etc. have to bite the bullet. Police and firefighters in many communities work 3 or 4 day weeks – why can’t they work 5 like the rest of us? They contribute almost nothing to their own retirements (private business has eliminated pensions so you are on your own) nor their health care. Finally, the baby boomers, who squandered gazillions of dollars in surpluses when SS was raided for decades, simply should have to do with less.
There is so much more to this issue than can be discussed in one article or reply. However, the mantra of taxing the rich more is simplistic, dangerous and masks the real problems we face today. I am far from rich but it has always bothered me the mob mentality with which the national media and our universities train the population at large to think of issues one way. Be better than that – we need you to.