The Practical Philosopher's Blog

Using the practical application of timeless wisdom to address modern issues

Taxing the Productive and Successful…er, I mean the ‘Rich’

President Obama thinks that he will bring billions back into the treasury by raising taxes on the top 2%, also known as the ‘rich’. Of course they won’t call it that because that truth is too harsh. Instead they fudge it by calling it ‘allowing the Bush tax cuts on the rich to expire’.

What’s with the Democrats today? In their world view, there are only the ‘rich’ and the ‘poor’. They imply that we live in a feudal society where people are born into their economic strata, never to be able to move up, but always with the specter of moving down- unless they get the benevolent help of a Democrat hand out.

But first, let’s shine the light of truth on the President’s statement. The term ‘rich’ is at once vague and subjective. To a teenager, someone making $100,000 a year might seem ‘rich’. To a working adult, some making over $1,000,000 a year might seem ‘rich’. What is really being described is someone who is productive and/or successful at what they do.

Essentially what President Obama wants to do is increase the burden/take away more money from those who are the most productive and successful in our society. This is because they don’t pay their ‘fair share’, right?

Wrong. The facts are stark. An insanely small percentage of our citizenry are already paying the majority of our total income taxes.

According to IRS figures from 2006:

Top 1% of income earners paid 40% of our total income taxes.
Top 5% paid 60% of our total taxes.
Top 10% paid 71% of our total taxes.
Top 50% paid 97% of our total taxes!!

Bottom 50% paid 3% of our total taxes
Bottom 40% paid none of our total taxes!!!

Well come on, you might say- that top 1% or even top 10% must all be million-plus-dollar-a-year types, right? Again, not so. The Adjusted Gross Income (AGI) of these groups is as follows:

Top 1% AGI: $388,806 or more a year
Top 5% AGI: $153,542 or more a year
Top 10% AGI: $108,904 or more a year
Top 25% AGI: $64,702 or more a year
Top 50% AGI: $31,987 or more a year

Can you see what a myth it is that taxes are ‘unfair’ for the poor or how the ‘rich’ don’t pay their ‘fair share’? Most people have no idea how quickly they could find themselves as one of the ‘rich’ that Obama and Democrats want to fleece.

What will happen as a result of the Obama/Democrat tax increases? It’s a matter of human nature. Those productive people- seemingly unknown to Obama and the Democrats- are rational operators. Given less reward for hard work, they will labor less. Given less reward for running their small businesses, they will lay people off, they will defer expansion plans and therefore, the need for more employees. Given less reward for their investments, they will avoid the risk and pull their money out of the stock market and start-up funding and look for something that is less risky. The economy will continue to contract, joblessness will continue to rise, and everyone will- including the government- will end up with less money. Everyone loses until we go back to letting the free market operate.

Note to Obama and leftist Democrats: Get some common sense!

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Filed under: Economy, Politics, , , , , , , , , , , , , , ,

7 Responses

  1. ophalm says:

    “Essentially what President Obama wants to do is increase the burden/take away more money from those who are the most productive and successful in our society. This is because they don’t pay their ‘fair share’, right?”

    it’s more about taking the money away from those that can afford to the most

  2. Philosopher says:

    Ophalm,
    I would first ask “can afford it” according to who?

    Second, they are already paying way more than their fair share as well as driving our economy. It may seem counter-intuitive, but you over tax the producers and you get less taxes. They simply produce and grow less.

  3. theleftcenterright says:

    It’s not exactly about taking the money away from those that can afford it the most – we have a progressive income tax system, but not a progressive capital gains tax system. Folks that are wealthy enough to earn their income from their investments typically pay less in taxes than those who earn six-figure salaries (or who have profitable small businesses – small business owners pay the tax on their business income on their personal income tax). Taxes are determined by definable categories of income – not based on total net worth. So the richest people in American don’t necessarily pay the most taxes.

    But even if the wealthiest Americans paid the most taxes would that be fair? Do we create a disincentive for success by financially punishing those that aim for more than average?

    • Philosopher says:

      I think your last point matches my main point- government creates a major disincentive when they punish success. This leads to less people spending the time to achieve success economically. That, in turn, leads to less taxes.

  4. ophalm says:

    they don’t really “punish success”, because the more you earn the more you get. getting a wage increase will always mean more $$ in your pocket.

    plus, those CEOs of all those massive banks that failed? are they the “successful and productive”?

    • Philosopher says:

      If you mean the ‘little guy’ who is in the bottom 40%, then yes he would/could succeed with a rise in wages (or government hand outs) until he or she hits the tax ‘glass ceiling’ that would dis-incentivise him/her to rise from there.

      I say they “punish success” from a bigger picture view: those that own or create the businesses in our ecomony will quit doing so in proportion to the reduction in reward for hard work and risk. This always leads to a reduction in our overall economy which inhibits that first ‘little guy’ from getting a job or higher wages in the first place.

      As for the CEO’s- again in the long run- they are productive, or companies wouldn’t pay top dollar for top talent. They also followed the government’s lead on buying up highly profitable, but highly risky sub-prime loans. The CEO’s didn’t create the sub-prime fiasco that put us where we are, the liberal emotional concept of ‘social justice’ did:

      https://pracphilosblog.wordpress.com/2009/01/31/leftist-social-justice-caused-the-financial-crisis/

  5. DJ says:

    Nice article Philosopher. What I think the liberals miss is the obligation of each person to live within there means. I can’t afford a $300,000 yacht, so I don’t have one. My son can’t afford a 65″ LCD TV, he wants one and is saving for it. Everyone I know understands the simle concept of “live within your means”. If you want a bigger house, a newer car, or whatever, go out and EARN it. No one is obligated to compensate the lifestyle of anyone else in this country. It is not my concern if my neighbor can’t afford something I have. If he wants to improve his lifestyle, it is incumbent upon him to improve his earning power.

    Living at or below the poverty line is a choice. Those that do not want to be poor can work a second or third job, they can go to school the list goes on and on. One has to make a deliberate choice to remain impoverished or to become more productive.

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