"Angels can fly because they take themselves lightly." – G. K. Chesterton

Right now the United States in 14.3 trillion dollars in debt with an annual deficit of almost 2 trillion.  With three wars still ongoing there seems little hope of cutting back on military expenditure and corporations certainly aren’t trimming their demands for handouts.  Next year the Baby Boomers will begin retiring, which puts added stress on Social Security and Medicare.  These grim facts have caused some to speculate that we should raise taxes on the rich.

Some, on the other hand, don’t want to.  They say that we can’t simply can’t afford to demand another nickel from people who are worth billions of dollars.  If we tax the rich more, the theory goes, they’ll respond by working less.

Now I can think of several things to say in response.  First, given that Bush pushed through billions in tax cuts for the rich during his presidency and didn’t exactly get stellar economic results, I’m skeptical that low taxes for the rich are all they’re cracked up to be.  I also have to ask, given the performance of rich people from Wall Street to Hollywood, whether we really want them to work hard.  But for the sake of argument let’s lay those thoughts aside for the moment.  Let’s ask, instead, whether it’s actually true that taxing the rich more will cause them to work less.

Consider a hypothetical scenario.  Bob Dewey, from the illustrious law office of Dewey, Cheatam, and Howe, is paid $500 an hour to prepare lawsuits.  Currently he’s taxed at 35%, so he takes home $350 per hour.  Now imagine that we raise his taxes to 40%, so he’ll instead take home $300 per hour.  The question is, will this cause him to work less.  Will society no longer get the productive benefit of being sued by him?

I simply don’t see why that would happen.  I don’t believe that Mr. Dewey carefully allots effort based on the money he’s taking home.  I think that he either works or does not work.  As long as he thinks he’s being paid enough to justify working, he’ll continue working.  I highly doubt that he’ll consider $300 an hour too little.  If anything, he may work more in order to make up for the income that he’s lost and maintain his lavish lifestyle.  There’s no reason to jump to the conclusion that he, or any other rich person, will work less if taxed more.

I’m not claiming to be an expert economist.  I don’t know whether raising taxes on the rich is a good idea or not.  But this particular argument against doing so fails.

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Comments on: "A Quick Foray into the Tax-Hike Debate" (6)

  1. In Canada, the top tax rate is 48% and we’ve pulled through this recession quite well so far. I don’t buy the arguement at all that increasing taxes on the rich is a bad idea. Keeping in mind, however, that the rich run businesses, spend money, hire people and keep the economy moving. It’s a tough balance to keep. I like the way you presented it, however.

  2. I could tell you a story about a hard working, family man who is making around $400,000 a year. Increasing taxes from 35% to 40% means his hourly take home wage drops from $125.00 per hour to $115.38 per hour. This would drop his take home salary from $260,000 to $240,000. While that is hardly tear jerking, maybe that drop in salary means he doesn’t buy his kid a car for his 16th birthday. That is the type of spending that has been keeping our current economy from completely tanking, spending by people who happen to fall in the highest tax bracket. Just felt your arguement needed a little balance.

    That being said, I am not deathly opposed to increase taxes, this predicament that we have ourselves in will take some drastic measures to resolve. First, I would like for our leaders to prove they can responsibly spend the money we are sending them right now. After all, this is how we found ourselves here in the first place. Once they show me they are serious on cutting spending, I will listen to an increase on taxes.

    All that being said, I am going to take a stab and guess that you don’t fall into that 35% tax bracket.

  3. Dale Husband said:

    The real problem with cutting taxes on the wealthy was that it limited cash flow that is the true indicator of economic activity and growth. The delusion the right-wing “supply side” scammers fed us was that increasing numbers of multi-millionaires and billionaires were a sign of economic prosperity, when in fact the opposite was the case; just as a dog’s life is slowly drained by thousands of fleas and ticks, so these ultra-rich were economic parasites. It is and always has been the MIDDLE CLASS, the ones who overall spend the most money, that truly drive a free market capitalist economy. We need a taxation system that reduces poverty, AND reduces the number and overall wealth of the uppermost class. A rich person may start a company, but he cannot run it by himself; most of his customers will be of the middle class. Eliminate them and the whole system crashes.

    • Yeah, that’s another point that I wanted to make. There’s no reason to assume that the rich are some sort of special motor or driver for the economy.

  4. […] imagine that John Dewey has recently retired from his profitable career at the law firm of Dewey, Cheatum, and Howe.  He has a net worth of one hundred million dollars, which makes him rich. He invests forty […]

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