Eat the Rich

Many in the media act as if the rich are evil tyrants who prevent others from prospering or who gained their riches by stealing from the poor.  And many think that the rich should be penalized by paying higher tax rates than the rest of us.  But I wonder, if the rich prospered through hard work instead of ill-gotten gains, why should they pay more than the rest of us.

Recently, Senator Harry Reid said, “we will not consign the middle class to higher tax bills while millionaires and billionaires avoid all the pain.”  But in fact, the President’s proposal is to raise tax rates on individuals making more than $200,000 per year to 36% or families making more than $250,000 per year to 39.6%.  What’s more, the President also wants to raise taxes on dividend income for these two groups.

I learned that some types of small businesses such as S corporations, limited-liability companies, partnerships, and sole proprietorships do not pay corporate income tax.  The taxes on these entities are paid by the shareholders in the form of personal income taxes.  Therefore, a change in the top two personal income tax rates also affects small businesses.  I’ve mentioned in an earlier post that small businesses are the backbone of our economy. 

While $200,000 may seem rich to someone making $30,000 a year, it’s not exactly Bill Gates or Warren Buffett kind of riches. But if these tax increases occur, how much more tax revenue is collected and what is the consequence?

CNBC reports that the raising the tax rates would increase tax revenue by $40 – 45 billion the first year.  That’s a lot of money, but without significant spending cuts, $40 billion doesn’t make a dent in the 2012 budget deficit, estimated by the White House to be $1.33 trillion.  So what are the consequences of raising tax revenue this way?

The House Ways and Means Committee commissioned an independent study by the accounting firm Ernst & Young to look at the long-term effects of changing tax rates.  The Ernst & Young report finds that higher tax rates will result in a smaller economy, fewer jobs, less investment, and lower wages.  More specifically, business output could fall by almost $200 billion; wages could fall by 1.8%, and a resulting loss of roughly 710,000 jobs.

In his fiscal cliff plan, President Obama has proposed another $200 billion in stimulus spending, including extending unemployment insurance.  Raising tax rates that jeopardize the economy and increase the risk of job cuts to raise $40 billion and then spend an additional $200 billion to stimulate the economy doesn’t make sense.

The country is facing a fiscal cliff that will adversely impact nearly every American if Congress doesn’t reach a deal to trim the deficit. As provisions of Obamacare take effect in 2013, employer costs will increase 6.5%, further impacting job growth opportunities.  Do we really want our leaders to further jeopardize the economy in order to tax the rich?

Hearing “tax the rich” being repeated over and over on the news reminds me of the Aerosmith song, “Eat the Rich”.   But once their bones are picked clean, who will provide employment or business opportunities for the country?

Its time our leaders make sensible economic decisions.  Contact your Senator (www.senate.gov) or Congressman (www.house.gov) and tell them what you think.  Better yet, call (202-456-1111) or email (http://www.whitehouse.gov/contact/submit-questions-and-comments) the President and let him know you want solutions, not games.