THERE ARE AT LEAST TWO SIDES TO EVERY STORY

Should we raise taxes on the rich?

By Andrew Vitelli
 Spencer Platt/Getty Images
*Updated 2018
Debate over taxes on the wealthiest Americans is nothing new, but it’s as relevant a topic as ever. It was a major focus of the latest election campaign, with discussion over the moral, fiscal and economic consequences of raising tax rates on high earners.

 

Here are three arguments for raising taxes on the rich, and three arguments against it.

 

We should tax the rich more

 

It makes economic sense

Taxing the rich to pay for programs that help the poor and middle class (or on things like infrastructure or national defense, which benefit all Americans) makes common sense economically. Very simply, money allocated to programs such as affordable healthcare, Pell grants, food stamps, and Earned Income Tax Credit – or given to working- and middle-class Americans through tax cuts – will be redistributed into the economy and stimulate growth. Tax hikes on the rich would have little impact on their spending, since most of this income would likely have gone into savings.

Historical data bears this out. President Clinton raised the top marginal income tax rate from 31 to 39.6 percent and saw GDP growth top 4 percent every year in his second term. President George W. Bush’s tax cuts were supposed to accelerate growth; instead, they led to unimpressive growth and eventually recession.

 

It’s about fairness!

The rich, by definition, have a lot of money; in fact, the top 1 percent control close to 40 percent of the nation’s wealth. The richest 400 Americans have as much wealth as the bottom half of the nation’s citizenry. Meanwhile, 43 million Americans live in poverty, with half a million homeless on any given night.

Even with higher tax rates (and fewer loopholes), the country’s wealthiest will be fine; billionaires like Warren Buffett and even Mark Cuban, a conservative, attest to this, having said they would be willing to pay more in taxes. But for the government to provide basic housing, nourishment, health care and education to the rest of its citizens, the money must come from somewhere. For the most fortunate to fail to pay their fair share would be a moral failure.

 

They’re already low (compared to the past)

After eight years of a Democratic president, some may think tax rates for the wealthiest Americans are historically high. In fact, the current top tax rate is less than half the 91 percent it was under President Eisenhower, a Republican. The top rate was consistently 70 percent or higher until the Reagan tax cuts of the 1980s, and those cuts resulted in the national debt tripling in eight years.

 

 

We shouldn’t tax the rich more

 

It’s about fairness!

First, let’s define fairness. Fairness means that Americans reap the rewards of their labor, that what they earn inherently belongs to them and not to the government to redistribute as it sees fit, and that the path to prosperity is through hard work and success.

Even through a flat tax, under which the rich pay the same tax rate as lower earners, the wealthy will still end up paying more in absolute terms since they have a higher amount of income to tax. But by any reasonable definition, the amount paid by the rich is already beyond their “fair share.” For example, in 2015, the top 1 percent earned 16.5 percent of income, but paid a staggering 43.6 percent of federal income tax.

Meanwhile, 45 percent of Americans pay no federal income tax at all. Entrepreneurs and business owners should not be penalized for their success.

 

It makes no economics sense

Forcing a small slice of Americans to bear an inordinate burden of funding the government is not just immoral but also  counterproductive; it kills jobs, and sometimes, even results in lower government revenue.

Raising taxes on the rich creates a disincentive for work and job creation, slowing down both. If higher taxes discourage a business from opening or expanding, it is not just the rich who suffer but also the workers who are not hired.

Further, this means that tax hikes often do not have the intended effect of raising more revenue. If high taxes slow down economic growth, the government ends up taxing a smaller amount of money at a higher rate. Sometimes, this means a tax hike actually leads to lower total revenues, but even in less extreme cases, tax hikes yield diminishing returns.

 

They’re already high (compared to other developed countries)

Yes, the top tax rate is lower than those seen in past decades, but that’s not the only relevant comparison. Compared to the rest of the world, at least for businesses, the US is already in bad company.

Only the United Arab Emirates, an oil-rich Middle Eastern country with fewer people than Michigan; Puerto Rico, a US territory; and Comoros have higher top corporate tax rates than the 38.9 percent seen in the US. For comparison, the top rate in the UK is just 20 percent; China is 25 percent; and Canada is 28 percent.

This already gives these countries a competitive advantage when looking to attract businesses. Raising the tax rates further will simply accelerate this trend, and every time a company moves overseas, it costs the US both jobs and tax revenue.

Bottom Line: Those who favor higher taxes on the wealthy believe it makes economic sense and see virtue in some redistribution of wealth. Their free-market opponents not only see this as wrong-headed government intervention, but also believe the economic consequences will hurt the rich and the poor alike. Where do you stand on this issue? Do you think taxes should be raised on the rich, or should the status quo be preserved?

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