Posted by silentpadna on 12/6/2012 10:22:00 AM (view original):
Many flawed assumptions going on...
I agree with Obama that the rich could and should pay more taxes however just raising the rate will not accomplish much if we don't close the loopholes first for getting out of paying the taxes.
First, there is no guarantee that raising rates will increase revenues in the first place. In fact, as I've pointed out, and is shown in the numbers (go the IRS and run the numbers yourself - it's easy to find and analyze), lower rates across the board tend to correspond with increasing revenues. It is also shown that the "rich" pay a bigger portion of the share of the larger revenues when the rates are lower. In the current economic/tax climate, which would you rather have? More revenue and a bigger share paid by the rich? Or less revenue with a smaller share paid by the rich? Historical evidence suggests you can't have both.
It is not simple arithmetic that makes this happen. Why? Policy is followed by reaction. In the same way higher taxes on cigarettes is a partial attempt to affect behavior, higher taxes on marginal income will do the same: affect behavior. Every percentage point a tax is raised on the next marginal dollar affects the incentive for one to earn (or spend time or risk money for) the next marginal dollar. Why? Because to earn the next marginal dollar requires more work, and if you're a business owner, it affects return on the risk of your own money. In the extreme case, early in the last century, the highest marginal rate was 91%. There is a huge discourgagement to risk the same thing for 60 cents return on a dollar earned versus 9 cents on a dollar earned. Each person risking capital has their own threshold but the marginal rates absolutely affect whether the money is earned in the first place.
the wealthy who are the only ones who would see a tax increase under Obama's plan.
Not exactly true. Since many of those who would get hit the hardest in rate increases are small businesses whose profits are taxed as income, it comes right off of their bottom line. Since most who own businesses do so because they want to outperfrom the market (a competing destination for risked capital), there is generally a required rate of return on their risk. If taxes go up on them, the only choice they have if they want to make a reasonable reward for their risk is to either 1 - Raise prices on their goods and services (essentially meaning the rate hikes don't hit them - it hits their customers. Unless their customers are all rich, then the tax rate is paid primarily by those are NOT weatlhy) or 2 - Cut costs, which generally means to scale back growth or reduce workforce or benefits to the people they hire. That of course hurts the very people those that want to raise tax rates are supposedly trying to help.
I'll keep saying this because the historical evidence bears this out:
1. Raising tax rates on the weatlhy does not guarantee raising revenue. In fact, historically the converse is true.
2. Raising tax rates on the wealthy does not shift the tax burden to the rich. In fact, historically the converse is true.
3. Raising tax rates on the wealthy does make some people feel better. Those people will likely pay a larger portion of the burden than they think because it really is not intuitive and not simple arithmetic.
It is NOT a zero-sum game. If you want more revenue, don't raise tax RATES. Increase the tax BASE. Allow more freedom. Freedom, not demand (especially artificial demand) is the engine.
I agree with a lot of what you are saying silentpadna.
Businesses that fall into the increased tax level that Obama wants will more than likely pass the extra cost of higher taxes onto their customers, if they can afford to do so. It might mean that their competition will be able to price the same product for less than they do which would result in lost revenue for them, however wouldn't that at the same time force businesses to become more efficient? Maybe there isn't anymore room to improve efficiency thus resulting in them going out of business? The economy doesn't need more of that either right now.
My point is if the Dems want to try that approach and it fails, like I think it will, then the Repubs should give it to them with both barrels and say, here ya go, it's what you want, and we are going to make sure all of the American voters know this is the Dems way. Hold them responsible, if it doesn't work, the next time we have an election the Repubs will gain seats like never before.