Raising Taxes on the Top 1% of Earners ... Why Stop There? Politics or Public Service??

We hear much these days from President Obama about the rich not paying their fair share of taxes. That means he wants to tax the top 1% of earners at rates higher than presently, in other words.

Of course, under the standard that every little bit helps, I see his point. But if he wants to address our many financial ills through taxation, he'll have to go far beyond the top 1%. How about the top 10%, top 25% or even the top 50%? In other words, why stop at 1%?

Probably because the president will start losing votes as he goes beyond the very top income earners. At least that's my guess. But why tax if it's not going to solve any of our financial problems by doing so? Just for the punishment aspect? And why single out for punishment those who earn lots of money? Anything wrong with that in America? I thought that was part of the American dream.

But rather than debate the motives of President Obama or the merits of even more income tax progressivism, let's address what would happen if taxes were raised now on the top 1% of earners. What would be done with the money, what would be the effect on our economy, and what would happen with respect to historically high budget deficits and debt levels?

What Tax Dollars Can't Buy discusses this issue in some detail. If the money were raised for the purpose of reducing income inequality, it wouldn't be a good thing to do. Here's the article's basic point:

" OVER the last 30 years, the U.S. economy has generated more large fortunes and more stress for the middle class. While the rich have grown extraordinarily rich, median wages have barely increased, the costs of health care and higher education have jumped, and socioeconomic mobility has lagged behind that of other developed nations. Americans have never begrudged the wealthy their success, as long as they had a chance to rise higher than their parents, and perhaps get rich themselves. But our era of diminished expectations is putting that in doubt.

From the drum circles of Zuccotti Park to the hustings of Barack Obama’s re-election push, a suddenly invigorated liberalism thinks that it has the answer to this angst: a renewed demand for higher taxes on America’s richest 1 percent. And if all you care about is reducing measured income inequality, then the Occupy Wall Streeters and their Democratic admirers have it right. Tax millionaires sufficiently and you’ll end up with a more equal society. The tallest poppies will be trimmed, and some of their income will find its way to someone’s else pocket."

To tax or not to tax, that isn't or shouldn't be the question. Instead let's first reform government to make our middle class stronger with additional opportunities for all members of an upwardly mobile society. If we did that, additional tax revenues would be forthcoming due to increased economic activity.

So here's one good way to raise tax revenues and create the society that best fits America:

"Rather, it should be a kind of small-government egalitarianism, which would seek to reform the government before we pour more money into it, along lines that encourage upward mobility and benefit the middle class. This would mean seeking a carefully means-tested welfare state, a less special interest-friendly tax code, and a public sector that worked for taxpayers and parents rather than the other way around."

In other words, let's agree on what are the right things to do so we don't end up doing more harm than good when we tax the citizenry and redistribute their hard earned tax dollars.

Unfortunately, that's not what happens today in our bloated public sector and generational wealth redistribution approach:

"But true social mobility and broadly shared prosperity are not so easily achieved. Remember that those tax dollars, once collected, would not be disbursed with perfect effectiveness to the most deserving members of the American middle class. Instead, they would be used to buy a little more time for our failing public institutions — postponing a reckoning with unsustainable pension commitments, delaying necessary reforms in our entitlement system and propping up an educational sector whose results don’t match the costs.

More spending in these areas won’t necessarily buy us more mobility. The public-sector workplace has become a kind of artificial Eden, whose fortunate inhabitants enjoy solid pay and 1950s-style job security and retirement benefits, all of it paid for by their less-fortunate private-sector peers. Some on the left have convinced themselves that this “success” can lay the foundation for a broader middle-class revival. But if a bloated public sector were the blueprint for a thriving middle-class society, then the whole world would be beating a path to Greece’s door.

Our entitlement system, meanwhile, is designed to redistribute wealth. But this redistribution doesn’t go from the idle rich to the working poor; it goes from young to old, working-age savings to retiree consumption, middle-class parents to empty-nest seniors. The Congressional Budget Office’s new report on income inequality points out that growing Medicare costs are part of the reason upper-income retirees receive a larger share of federal spending than they did 30 years ago, while working-age households with children receive “a much smaller and declining share of transfers.” Absent reforms, this mismatch will only grow more pronounced: by the 2030s, Medicare recipients will receive $3 in benefits for every dollar they paid in.

Then there’s the public education system, theoretically the nation’s most important socioeconomic equalizer. Yet even though government spending on K-to-12 education has more than doubled since the 1970s, test scores have flatlined and the United States has fallen behind its developed-world rivals. Meanwhile, federal spending on higher education has been undercut by steadily inflating tuitions, in what increasingly looks like an academic answer to the housing bubble. (If the Occupy Wall Street dream of student loan forgiveness were fulfilled, this cycle would probably just continue.)"

The summation goes like this:

"The story of the last three decades, in other words, is not the story of a benevolent government starved of funds by selfish rich people and fanatical Republicans. It’s a story of a public sector that has consistently done less with more, and a liberalism that has often defended the interests of narrow constituencies — public-employee unions, affluent seniors, the education bureaucracy — rather than the broader middle class."

My view is that the market works just fine to spread wealth around, including opportunities for a hard working upwardly mobile middle class. On the other hand, big brother government control, benevolence and wealth redistribution all stifle individual ingenuity and hard work, thus irreparably harming the middle class and the rest of society as well.

If we choose to take from the rich and give to the poor, that's one thing. In fact, that's often the decent thing to do.

But if we take from the young and give to the old, or take from the hard working private sector earners and give to government employees, that will only make us weaker and less of an equal opportunity society. That's not a happy thought.

Thanks. Bob.