Raising tax rates on the rich is no guarantee of new revenues

Raising tax rates on the rich is no guarantee of new revenues

The late comedian George Carlin once quipped:

The rich are there to make all the money and pay none of the taxes. The middle classes are there to do all the work and pay all the taxes. The poor are there to scare the daylights out of the middle class so they’ll keep working and paying the taxes.

Carlin knew whence he spoke. At the time of his death, his net worth was estimated at $300 million.

It seems to be a fact of life that the rich get richer and the poor get poorer. The ostensible desire to correct this imbalance is at the very heart of President Obama’s demand that the rich “pay their fair share.” This, he proposes to accomplish, by taxing income above $250,000 at a higher marginal tax rate. Currently, the top rate is 35 percent. Obama wants to raise it to 39.6 percent, the same as it was during the Clinton era.

But therein lies the rub. As a rich man himself, Obama has to understand that the wealthy are skilled at gaming the system. The Internal Revenue Code, the federal tax bible, is a thick tome with over 1.3 million words. Much of the language is unintelligible to the average shlub.

That is why the rich go out and hire high-priced tax attorneys, whose job is to sidestep financial landmines. If you raise their rates, they will find back doors and false walls in the tax code that will enable them to dodge the tax man.

These tricks are known popularly as loopholes. Some reside in a gray area that straddles the fence between legitimacy and illegality. Closing off these escape routes would raise revenues. Simply increasing the rate of taxation on the top 2 percent will not.

So why is the president fighting so hard against the Republican solution to the debt crisis—which is to close loopholes? The answer is that raising rates on the rich “feels” right, even if it will ultimately fail to generate the desired revenue. In a Friday editorial, Investors Business Daily put it this way:

Barack Obama has the rules of propaganda on his side here: The simple beats the complex, and social-justice symbolism packs an emotional punch that economics can’t match. But the reality is clear: You can jack up rates on the rich all you want, but that doesn’t mean you’ll get more tax revenue out of them.

IBD notes that historically changes in rates have had little impact on tax revenues, which are more directly affected by swings in the economy and the stock market. “Rates,” they rate, “are a political sideshow.”

But that is why this argument appeals to the president, who seems to enjoy political theater and posturing more than he does governing.

Related Articles

Follow me on Twitter or join me at Facebook. You can also reach me at howard.portnoy@gmail.com.

Howard Portnoy

Howard Portnoy

Howard Portnoy has written for The Blaze, HotAir, NewsBusters, Weasel Zippers, Conservative Firing Line, RedCounty, and New York’s Daily News. He has one published novel, Hot Rain, (G. P. Putnam’s Sons), and has been a guest on Radio Vice Online with Jim Vicevich, The Alana Burke Show, Smart Life with Dr. Gina, and The George Espenlaub Show.


For your convenience, you may leave commments below using Disqus. If Disqus is not appearing for you, please disable AdBlock to leave a comment.