Why Not Tax “The Rich?”

December 10, 2010

The DC criminals are in the middle of a planned shakedown. Make no mistake. Someone is going to be the target of this shakedown. Could be the rich…could be the President and his Democrats in Congress…but somebody is going to get shook down. The most likely victim is ALL the American people, since we are the ones who have to pay for all this criminal spending.

The present dog-and-pony show is between House Republicans and President Obama. With their new-found semi-gelatinous spine, the Republicans negotiated a deal with the President that extends all the Bush tax cuts for all taxpayers for two years. Naturally, these paragons of virtue could not leave the deal alone, but have loaded it with other proposals that complicate the issue and make it harder to get passed and signed into law. And don’t be fooled by this charade. Republicans are big spenders, just like the Democrats.

Allow me a momentary digression.

The new Republican leadership, in anticipation of gaining the majority in the House of Representatives, has named Kentucky Rep. Hal Rogers to chair the all-powerful House Ways and Means Committee. This is the committee that controls ALL spending bills that go through the House. Rogers has earned the moniker “The Prince of Pork,” for his ability to bring home hundreds of millions in tax dollars for his House district. Even Kentuckians know this. Kentucky’s Lexington Herald-Leader called Rogers “the very model of an old-fashioned pork-barrel politician who builds an empire out of government spending.” The Republican leaders shoved aside a much more conservative Rep. Jack Kingston of Georgia to install this “Prince” on his new throne.

John Boehner, the new Republican Majority Leader and likely Speaker of the House, and the rest of the Republicans, are laughing at you, America. You fell for their bullsh** once again when you went to the voting booth. When guys like Rogers are awarded the most cherished Chairmanships, you must know that nothing has really changed in DC.

OK…back to the rich.

The “Bush Tax Cuts” are really not tax cuts. They lowered some tax rates and revised certain sections of the tax code. But Democrats want to raise the tax rates on certain high-income citizens.

Why all the fuss about taxing the rich? Most people in American don’t make above $250,000 a year. Why shouldn’t those highly paid people pay more in taxes?

Answer #1: Because a graduated income tax is not equitable. Everyone should have the identical tax rate…that is, if we must have an income tax.

Answer #2: Because people with money to spend or invest cannot prevent creating jobs simply by spending their money.

Think about your individual circumstance. You earn income, and spend income to support yourself and your family. If you spend more than you earn, you are a typical American. If you spend less than you earn, you have surplus income.

Q: What do people do with their surplus income?
A: You have four choices….save it, spend it, invest it, donate it. But each choice nearly guarantees that jobs will be created or maintained. Look at each choice:

1. Save it: If you tuck in under the mattress or put it in the safe, that’s fine, since you’re putting money aside for a reason. If you exchange your paper currency for gold and silver, you are protecting your money’s value. If you place your money in a bank savings account, the bank will lend your money to another person or business for some purpose, like a new car, home improvements, or business investment. All of the purposes mean that a product or service is getting produced, and that requires humans to add the labor. Human labor is called “a job.”
2. Spend it: You spend your money on goods and services. That means that, before you wanted to spend, someone already created the product or service you want to buy. That is called risk capital at work. Some person put his money at risk to create that product or service so you could buy it. Human labor is a component of the product or service and is called “a job.”
3. Invest it: Investors seek a return on investment, which is your money at work making more money. You can invest in your own business or someone else’s business. But if whether bank savings, Certificates of Deposit, stocks, bonds, mutual funds…the money ends up being used by humans adding value with their labor…a job.
4. Donate it: Some people give away their surplus income or a portion of it. Even if they give their surplus directly to a needy person or needy family, the needy will spend it on goods and services. A charity that feeds the poor may accept donations of food, and then donate the food to the needy, but somewhere along the line, the ones donating to the charity had to have surplus. And surplus is a return on investment.

All four choices seek a return on investment. Even when you spend your money, you’re trading your dollars for goods and services, which is a return on investment.

Highly compensated individuals have more discretionary income to use for any of numbers 1 – 4. And they are just like you in that they will use their discretionary income by choosing numbers 1-4.

We all know that people at the lower end of the economic ladder are usually wage earners, and do not have as much discretionary income as people at the higher end of the ladder. People whose income is exceeded by their expenses do not typically hire maids, or gardeners, or nannies. They don’t create jobs since they don’t have the discretionary income to invest.

The rich are usually not wage earners. They are usually investors and business owners. They place their discretionary income at risk and seek a monetary reward…a profit. And the more profit they earn, the more naturally-occurring pressure they experience to make their profits earn more income. Few want to just take their profits and bury them in the back yard. They want their profits to generate more profits.

The rich pay more taxes under any system of taxation than do the poor or middle class. In some systems, they pay more in actual dollars than the poor or middle class. In some systems, they pay more as a percentage of their income than the poor or middle class. Some tax schemes get the rich both ways. The American tax system is the one that screws the rich both ways. And when the rich have to bear a greater burden of taxation for the whole economy, it means they have less capital to place at risk. Less capital at risk means less goods and services being created, which means less jobs created.

Simply stated, those with more discretionary capital create jobs for those who do not have as much discretionary capital or have none at all. But if government takes more of the income from the rich, they have less with which to create jobs and wealth for everyone. Tax the rich heavily and watch the economy suffer. Tax everyone fairly and watch the economy thrive.

It’s like a guy who owns a water well. He’s happy to sell you water. Sometimes he even gives away water. But when someone else comes along and steals his water, he has less to sell or donate. So everyone is more thirsty.

So, as the article title asks, why not tax the rich? Because it is the rich that place their discretionary income at risk, and seek a return on investment. In the final analysis, that almost always translates into increasing the total amount of wealth for the entire nation.

DumpDC. Six Letters That Can Change History.

© Copyright 2010, Russell D. Longcore. Permission to reprint in whole or in part is gladly granted, provided full credit is given.