Why We Can't Soak The Rich

There is a lot of talk amongst liberals right now about raising taxes on the rich. What makes me so very angry I can hardly see straight is the fact that they intend to soak those with high income, not those who are rich, because, of course, many of them are actually rich and do their level best to dodge taxes.

The saying is, of course, that these people are often multimillionaires who want to help the poor with someone else's money. Since they, by and large, avoid paying taxes on their actual assets, they shift the burden of payments onto the average person. In order to seem like they are paying their fair share, they raise taxes on the highest incomes, pretending that those taxes actually apply to them, when, in reality, they pay capital gains on their income without having to pay social security and the rest.

See, a person who is 'rich' has a lot of assets, and these assets, such as a paid-for mansion or paid-for cars, can be said to depreciate, hiding any income the 'rich' may have, which neen't be much. Other assets they have, generally investment vehicles, provide them with income in the form of capital gains and dividends. This income is not the same as payroll. Income from dividends, interest payments and the like end up being taxed as self-employed income, but capital gains do not. Capital gains is subject to a flat tax without any social security, medicare or medicaid tax. This is why CEOs happily take stock options in lieu of a salary. The difference between the strike price and the sales price is capital gains, not income.

A person who is rich also pays people to protect his money, and one of the entities he tries very hard to dodge is the tax man. If you look at the complexity of the tax code, you'll find an awful lot of it has to do with hiding income so that those who are rich can lose enough money to avoid taxes.

So, anyway, raising the highest tax rates will merely cause more 'creative compensation' schemes, like the above-mentioned stock options, to reduce the total tax burden on the income. It won't necessarily increase revenue from taxes.

Raising taxes is really not all that bright of any idea, anyway. The fact is that the government is seriously in debt. It needs to learn to live within its means, not continue to grow. Given the amount of money it needs to save this year to achieve solvency, some $1.6 trillion, raising taxes simply isn't going to cut it, without raising them to ruinous levels. At some point, someone is going to have to step up to the plate with a plan that cuts spending by at least $1 trillion this year and commits to significant cuts next year, at least another half trillion. With a modest raise in taxes, that would equate to a mild surplus in year three.

Or, we could just enact my particular vision, ditch the income tax, return to the excise and tariffs of yore, perhaps with a corporate income tax, and hack around $1.8 trillion or so off the budget. The immediate increase in available income would reduce the rate of foreclosures and increase discretionary spending by the American consumer, leading to economic recovery.

As for the loss of jobs from cutting government so much, the fact is that dollars spent by consumers have higher velocity than dollars spent by the government, so every dollar spent by a consumer will go through more hands, meaning more jobs. The money doesn't go away; it gets spent one way or another. If the consumer simply puts the money in the bank, he drives down the rate of interest at that bank, leading to increased borrowing, which will lead to increased spending by someone else.

This idea that liberals have that the government is somehow superior at spending is laughable, and leads to the government spending on things nobody wants or needs, like three simultaneous wars, or, indeed, the ability to prosecute three simultaneous wars. With a careful and prudent hand, it is possible to eliminate vast stretches of bureaucracy and help those trapped in government jobs to lead wonderful, productive lives enriching the human experience with real production.