That Makes Me Stabby: Overtaxing the Rich

I saw an interesting story on CNNMoney about the recent trend toward taxing the rich to pay for government programs, both major and minor. I was already a bit stabby about the “tax them if they make more than $250,000″ mantra, and now I’m even stabbier. If you want to see me “defend the rich,” keep reading. If not, then feel free to yell at me in the comments starting now.

Is $250,000 Rich?

My answer there is: it depends. If you’re living in rural Nebraska, then yes, a $250,000 a year income might be considered rich. However, you might also be a farmer and that income is revenue from your farm before expenses. So, then maybe you’re not rich.

Or, let’s take the more likely scenario – a two-career family in California. It’s entirely possible for a couple living in California to earn more than $250,000 a year. It’s also very likely that those salaries are the result of very expensive MBAs, law degrees, medical degrees, and other advanced degrees. So a good chunk of that money is going toward student loan debt. Another big chunk is going toward the highest cost of living.

$250,000 seems like a king’s ransom to some people. It seems like the income of middle-class, middle-aged families to other people. In effect, a tax on people making more than $250,000 a year is a tax on the middle class for those of us who don’t live in the middle part of the country.

But They Don’t Need the Money

That’s the argument you hear from others intent on taxing them. No, most people making more than $250,000 aren’t hurting financially. They can afford what they need and have some money to play around with. I will give you that.

Could This Actually Hurt the Economy?

I’m no economist or expert, but it seems to me that we’ll reach a breaking point if the government adds a 1% tax here, and a 2% tax there, and another 1% tax there. Slowly, the tax rate creeps up. The top tax rate currently stands at 33%. If enough federal and state programs get pushed through, that number will creep up. Then factor in the tax increases that will be necessary to pay off all these deficits we’ve run up and we’re zooming past 40%. Suddenly those “rich” people aren’t feeling particularly rich, or particularly like buying that expensive car, or that new big screen TV, or any of the other purchases that make up most of this country’s economy. Those same people will also start looking for ways to hide their money so they don’t have to pay for all those programs.

Funny Thing: Many People Don’t Support These Taxes

I saw an opinion piece that argued that people are aspirational about their income. They don’t necessarily want to supertax the rich because they expect to be rich someday themselves. I saw that very thing happen in California when a very rich actor wanted to pass a 1% tax on incomes over $1 million to pay for a mandatory pre-school program. The proposition went down in flames. Maybe it was the idea of mandatory pre-school, but I suspect it was the idea of yet another tax. We Californians are taxed enough, thank you very much.

What If They Don’t Index that Income to Inflation?

That’s my biggest fear with these taxes on the rich. If we’ve learned anything about attempts to capture more of the income of the rich it’s this: inflation gets us all. The AMT was created to tax the rich. Except it wasn’t indexed to inflation. Now it taxes the middle class. If any of these “tax the rich” proposals get passed, they must be indexed to inflation, otherwise they really will be middle class taxes thirty years from now.

Look, I know many of these programs are important. I also know we need to pay for them without creating debt, but I don’t see tacking on more taxes little by little as a way to do it. The best option would be to reduce spending in other areas. I haven’t considered the flat tax or the fair tax, but maybe they ought to get a closer look. Or maybe we need to pass new tax rates at all levels. Whatever we do, it needs to be honest and up-front, not sneaky taxes that sound good on paper but don’t work in reality.

Okay, I’ve said my piece. Attack away.

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