Taxing the Rich

Across time, place, and culture, higher tax rates have always driven society's producers to leave or go underground.  Why, then, do politicians keep instituting this absurdly counterproductive measure?
John-stossel

Progressives want to raise taxes on individuals who make more than $200,000 a year because they say it's wrong for the rich to be "given" more money. Sunday's New York Times carries a cartoon showing Uncle Sam handing money to a fat cat. They just don't get it.
       
As I've said before, a tax cut is not a handout. It simply means government steals less. What progressives want to do is take money from some — by force — and spend it on others. It sounds less noble when plainly stated.
       
That's the moral side of the matter. There's a practical side, too. Taxes discourage wealth creation. That hurts everyone, the lower end of the income scale most of all. An economy that, through freedom, encourages the production of wealth raises the living standards of lower-income people as well as everyone else.
       
A free society is not a zero-sum game in which every gain is offset by someone's loss. As long as government keeps its thumb off the scales, the "makers" who get rich do so by making others better off. (When the government allocates capital or creates barriers to competition, all bets are off.)
       
Of course, this is not the prevailing view among the intelligentsia. Columbia University Professor Marc Lamont Hill tells me, "Those who have more should pay more."
       
But is there a point where they stop producing wealth or leave altogether?
       
"The rich have always cried wolf like that," Hill says.
       
But the wolf is here. Maryland created a special tax on rich people that was supposed to bring in $106 million. Instead, the state lost $257 million.
       
Former Gov. Robert Ehrlich, who is running again for his old job, says: "It reminds me of Charlie Brown. Charlie Brown was always surprised when Lucy pulled the football away. And they're always surprised in Washington and state capitals when the dollars never come in."
       
Some of Maryland's rich left the state. "They're out of here. These people aren't stupid," Ehrlich says.
       
New York billionaire Tom Golisano isn't stupid, either. With $3,000 and one employee, he started a business that processes paychecks for companies. He created 13,000 jobs.
       
Then New York state hiked the income tax on millionaires.
       
"It was the straw that broke the camel's back," he says. "Not that I like to throw the number around, but my personal income tax last year would've been $13,800 a day. Would you like to write a check for $13,800 a day to a state government, as opposed to moving to another state where there's no state income tax or very low state income tax?
       
He established residence in Florida, which has no personal income tax.
       
Now Gov. David Paterson may have even seen the light.
       
"We projected that we would get $4 billion, and we actually got well short of it," he says.
       
Art Laffer, the economist who has a curve illustrating this point named after him, isn't surprised.
       
"It's just economics," he says. "People don't work to pay taxes. People work to get what they can after tax. They'll change where they earn their income. They'll change how they earn their income. They'll change how much they earn, when they receive the income. They'll change all of those things to minimize taxes."
       
We can see it in the statistics. In 1960, federal revenues were 18.6 percent of total output. Over the next 50 years, that percentage has rarely exceeded 20 percent or fallen below 17 percent. As Laffer says, people adjust their activities to the tax burden.
        
Donald Trump, who knows something about making money, says of course the rich will leave when hit with higher taxes. "I know these people," he told me. "They're international people. Whether they live here or live in a place like Switzerland doesn't really matter to them."
       
You haven't left, I told him.
       
"I haven't left yet. ... Look, the rich people are going to leave. And other people are going to leave. You're going to end up with lots of people that don't produce. And then that's the spiral. That's the end."
       
And that's another good reason for us to get on with reducing the size of government.


John Stossel is host of "Stossel" on the Fox Business Network. He's the author of "Give Me a Break" and of "Myth, Lies, and Downright Stupidity." To find out more about John Stossel, visit his site at johnstossel.com


6 comments from readers  

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Small
Beyond all this, really, all taxes are taxes on the poor. The more capital you have the more power you have in the market; if taxes go up, you raise your prices, cut jobs, cut hours, cut wages. You move, you change business models, you do whatever to make sure every year you're making *more* than you did last year. That's fine and good, but when the state causes these changes, it comes out of the working class' pocket - they're the ones who lose wages, lose jobs, and pay a higher cost of living. The rich never pay a dime if they can avoid it because they have the power and mobility to avoid the cost or pass it on to people lower down the dogpile. The only people who profit from increased taxes are bureaucrats. Telling poor people they're going to "tax the rich and give to the poor" in exchange for their support is a malicious lie. They will not tax the rich because they cannot tax the rich, and whatever pittance ends up subsidizing the poor after the state takes its enormous cut will ultimately have come out of another poor person's pocket. This is not the fault of the wealthy, and it isn't the fault of the working poor - it is the fault of the parasites in "public" office.
Small
I am reminded of: "'Every word she says is a lie, including 'and,' 'but' and 'if.'' What Mary McCarthy said of Lillian Hellman, ".

I am not sure of every word, but the general tone of this article is close to congruent to that statement. The fact is that the very richest in this country only pay about 17% of their TAXABLE income in taxes. That is noticeably less than the average working stiff who pays about 15% payroll taxes and then 4 to 7% sales taxes on the remainder. This ignores things like medicare and all the hidden taxes.

And if Mr. Stossel had any knowledge of history he would be aware that this country was much more functional with a much more robust middle class and a much stronger manufacturing sector when taxes on the very wealthy were quite higher than they are now. IE when the wealthy actually did pay more than the middle class in taxes.
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Put it simply and bluntly:

1) By leftest "logic", it should be okay to rape a girl if she is pretty enough -- "Those who have more should pay more."

2) Stealing is wrong. Even if you are too cowardly to do it yourself and have thugs do it for you.

3) People deserve equal protection under the law. Paycheck has nothing to do with that.

4) Many of the so-called "Rich" are just small business owners, forced to count business income as personal income.
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Excellent article! I hope it appears on editorial pages across the nation while it can do the most good.

I had an eerie experience at a Sears recently. It had been nearly a year since I had managed to buy what I needed-- a riding mower part-- at the local store, but I went anyway. As usual the store was clean, beautifully appointed and air conditioned, and staffed with polite helpful people. Once again, they had to tell me they did not carry the parts in the store. Once again, an idle salesman helped me search online for the part even though he would not be receiving any commission for his effort.

We talked. I asked him how he could make a living when his store would not allow him to make a commission selling people the things they want when they walk into the store. The salesman was well-informed, thoughtful, frank, and concerned about the future of his children and our nation. He described himself as a "youth minister." He was originally from a Latin American country that had gone socialist, and his eyes were wide open.

Finally, his confession: "I work here because you have to show some kind of legitimate source of income if your family is to live at a certain level," he said. In other words, he made his mortgage and vacation money elsewhere, under the table, where it could not be seen and taxed by the government. Web or tax preparation services? Tutoring? Drugs? Motor repairs? Catering? Bookie? I did not ask and he did not offer.

Of course it is only a matter of time until Sears decides to close its stores, declaring them expensive and unprofitable... who knows if I will buy my next riding mower on line, but I doubt it...

I am convinced at this point that the "underground economy" of people like my salesman who sell each other goods and services in their parallel "tax-free zone" is only thing still prospering in the US of A.

Does Sears think it can survive selling credit and warranties out of boiler rooms? After Sears closes and the Mom-and-pops are destroyed by the taxation discussed by you, the country is going to feel a lot different, because retail stores, even more than cops, hold the front line of civilization.

Even the "working classes" are feeling overtaxed already. How about taking a look into their "underground economy"?
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Seems that every day, I realize that there is something worthwhile out there that I had no clue about! I like this Atlasphere!

I love Ayn Rand, too, but I also recognize that her passion is rooted in a paradigm that was constructed in part of horrors that we cannot know because we have grown up in a country that has never been totalitarian (not like Russia or China or Nazi Germany, anyway). She is essentially correct, but that doesn't necessarily equate to solutions that work.

Everyone has a tipping point beyond which taxation is intolerable. Everyone has a different ideal level of governmental services (spending).

How does the USA stack up in terms of cost of government as a percent of the economy? Is that even knowable information? All levels of government, all taxes, etc.?

We have such masive issues that are growing, not being dealt with virtually at all. Expensive issues, scary deep issues. Clearly, taxing more out of people simply because they have more will be a catastrophe.

I agree with your general point, but I never hear the solutions. Things just keep getting worse through Republican and Democratic regimes, and real solutions are evidently beyond the grasp of our ruling class. We're good at arguing. That's about it. We all just draw lines in the sand and proclaim why "they" are wrong. Both sides. Nobody really even wants to win. It's like one, long Vietnam war. It's torture, and it never ends.

This is evidently STILL the year of living dangerously. What then shall we do?"
Small
I was fascinated by the data you presented that historically, society has never piad more than 20% of total ouptut for government. It seems to suggest the when government has attempted to confiscate above this level, people curtail their production and/or emmigrate to less confiscatory jurisdictions. Is this, perhaps, evidence of some underlying natural, behavioural or economic law? Perhaps it is some kind of beghavioral "sound barrier" that when more than 1/5th of a person's wealth is forfiet their creative and productive impulses diminish in favor of the impulse to just survive or to "get by". After all, true "outside-of-the-box" thinking and creativity comes with a significant level of risk because failure is the most likely outcome. Most people will only assume such risk when they have reason to be confident and feel safe in all other respects.


I, myself, know several people, productive and historically succesful business people, who currently descibe themselves as "taking a break", or "wating to see what happens". They are no longer actively searching for new opportunities and few even seem to be interested in the ideas or opportunities that are brought to their very door. Once ,when I worked for them, their needs and wants were imperative yesterday, now nothing is so urgent that tommorrow or the next day will not do.
To post comments, please log in first. The Atlasphere is a social networking site for admirers of Ayn Rand's novels, most notably The Fountainhead and Atlas Shrugged. In addition to our online magazine, we offer a member directory and a dating service. If you share our enjoyment of Ayn Rand's novels, please sign up or log in to post comments.