Monday, July 21, 2008

Why Dems' Call for Higher Tax Rates Is Dumb

Here it is again, in case the people who haven't been listening have suddenly started.

"Higher taxes for the rich" sounds great to the electorate. After all, "the rich" are always richer than I am, because I'm middle class (various studies show how pervasive this phenomenon is: most folks, no matter how well off, know several people better off than they). Higher taxes for them gives me a sense of moving toward equality, which is a better way to put than to say it satisfies my desire to bring down someone who has something that I don't. I can even imagine myself the beneficiary of government spending that higher taxes will fund, though thinking that anyone will benefit from increased government spending is a stretch even for those indulging in the other fantasies.

But the truth is, as tax rates go up, the amount of taxes paid by the upper-income brackets and even the proportion of total taxes that those brackets pay, often go down.

For those who doubt this phenomenon, today's WSJ opinion page explains. As the chart atop this post reveals (shamelessly copied from WSJ), with Bush's "tax cuts for the wealthy," the amount and percentage of taxes paid by the wealthy has skyrocketed. By contrast, the bottom half of American earners paid only 3% of federal income taxes last year. Kinda hard to give that group a tax break, we think.
And so the political lesson, per the good editorialists:
If Mr. Obama does succeed in raising tax rates on the rich, we'd also wager that the rich share of tax payments would fall. The last time tax rates were as high as the Senator wants them -- the Carter years -- the rich paid only 19% of all income taxes, half of the 40% share they pay today. Why? Because they either worked less, earned less, or they found ways to shelter income from taxes so it was never reported to the IRS as income.

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