President Obama has pushed his “tax the wealthy more”
argument all through this campaign, and it is certainly an appealing populist
position. “Robbing Peter to pay Paul” will always seem like a good idea to Paul.
Leave aside the point that taking the entire annual income
of the fabled top 1% would make a hardly noticeable dent in the federal deficit,
so that President Obama’s proposal does almost nothing to solve the real
deficit and debt problem we face.
The real problem is much deeper than that. Think about the
logic of the economy. Companies, big or
small, who want to expand their business or invest in a new product or line of
business go to the bank and borrow money (or float bonds or sell stock, which is much the
same thing, borrowing directly from the bond or stock holder) to finance the expansion
or new investment. But where does the bank get the money to loan? It comes from
people who put money into the bank in the first place as savings. If nobody saved in the bank, the bank would
have no money to loan.
Who provides most of the money saved in the bank (or invested
in bonds or stock)? Not the poor -- they need all
their money for day-to-day living. Most
of the money put into the bank (or invested directly into bonds or stocks) comes from the
only people who have more money than they need to use right away – the “rich”
that Obama wants to tax. Oh, and average people’s pension funds are also a
source of much of the investment money as well, so even many of the 99% are in
this game indirectly.
So if the government taxes that money away from the wealthy
instead of leaving it for them to put into the bank or invest in stocks or bonds, there
is that much less money available in the system for businesses to expand or start
up new businesses. This might not matter so much if the government turned
around and used that money taxed from “the rich” to loan to businesses for
their expansions and start-ups. But
mostly the government doesn’t do that – it spends almost all the money for its
own purposes, which usually have nothing to do with helping businesses finance
their expansions or new start-ups.
European governments tax the wealthy far more than we do,
and European governments have much, much less vital economies. Of course European
governments do many other things which also inhibit their economies, but this
is surely a major contributor.
Like so many things, “taxing the rich more” sounds appealing
to people who don’t think the economic problem through beyond the first step. But it is counterproductive. Far more effective, if President Obama really
wants to help the system, would be to clean up the tax code, which is some 71,684
pages (as of 2010) of nightmare complexity, riddled with special
deals for interests groups and favored corporations, supporting thousands of (very
expensive) tax accountants and tax lawyers, not to mention thousands of IRS bureaucrats, none of who contribute anything tangible or productive to the nation's wealth.
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