Wednesday, April 14, 2010

The Old Saw -- Tax The Rich

There continues to be the strange and perplexing discussion about taxing the rich. Are they kidding?

The government can set tax rates but they cannot set tax revenues. To make this point obvious, just imagine that the government decided that tax rates were going to be 100 percent of income. You think revenues would go through the roof?

The potential to increase revenues by raising tax rates is's limited for any income group, but it is especially limited for the rich. The rich don't get w-2s. They get 1099s. Big difference. The rich can control, by adjusting their asset mix, the amount of 1099 income that they take in and the rich can control the form in which it comes. Not true with w-2 income. You have to quit your job to lower w-2 income. So, if you have w-2 income, you're stuck. The middle class has mostly w-2 income.

The middle class is trapped in the Obama tax machine. Taxing the rich is just conversation to fool the gullible. There are no real additional revenues available from taxing the rich.

That's why the Obama folks and the Congressional Democrats are talking about the VAT (the Value Added Tax). That tax is paid by the middle class.

Ultimately, it doesn't much matter what tax is discussed. Entitlement spending will outrun any tax program. In fact, the entitlements will outrun GDP eventually. So, what difference does the tax system make over the long haul. VAT, higher taxes on the rich, whatever. These are just Democratic talking points.

The reality is that nothing can keep pace with the growth in entitlements -- not in the US, not in Greece, not in Germany, not in the UK, not anywhere.

The rich aren't quaking in their boots over higher tax rates, because they know they are not going to pay higher taxes, even if there are higher rates.

The only real impact of higher tax rates on the rich is to convince entrepreneurs and businesses to hire fewer people and be much more cautious in expanding their businesses. This simply means higher unemployment and economic stagnation. That's the Obama way.