Filed under: Capitalism, Economy, Liberalism, Politics, Taxes | Tags: "Tax Cuts for the Wealthy.", Capital Willl Go Where it is Well Treated, Free Markets / Free People
Democrats firmly believe that if they increase tax rates on the wealthy, they will get lots more money coming in to the Treasury. This will allow them to painlessly pay down the debt they accumulated by enacting all sorts of programs that were supposed to help the poor. This was important because good people care for the poor and disdain the rich. Liberals don’t associate with the poor, of course, but they care.
The Bush tax cuts are especially reviled, partly because they were Bush’s, but even more because Liberals have spent the last seven to nine years raging about the “tax cuts for the rich”, which is something they like to do because it shows how compassionate they are about the poor. This creates a major conundrum for them.
They know that you are not supposed to raise taxes during a recession, but if they agreed to extend the Bush tax cuts they would look like fools because of all that howling about “tax cuts for the rich.” So they think they can get by if they extend the tax cuts, at least temporarily, on everybody else, and raise taxes on the wealthy. Dan Henninger noted in the Wall Street Journal that:
Mr. Obama said that the middle class had been “playing by the rules.” while those “at the commanding heights” had not, benefiting from “huge tax cuts for the wealthy and well-connected.” “It’s a legacy of irresponsibility” he said, “and it is our duty to change it.” He proposed “prudent investments” in health, education, infrastructure and clean energy. ObamaCare became one such “prudent investments.”
Lower tax rates for high earners are obviously beneficial for those earners, but that is only a tiny part of the story. To stimulate work, saving and investment, you have no choice but to favor the taxpayers who have extra money, and respond most to taxes and are likely to invest. That means high income earners.
Capital will go where it is well treated. If it is taxed heavily here, it flees elsewhere and can easily be invested overseas. Policy-makers must accept some inequality in exchange for efficiency. The wealthy have many options, and the best of accountants. John Kerry, the wealthiest member of Congress, made an unwanted bit of news earlier this year when he moored his $7 million yacht in Rhode Island to save $500,000 that he would have to pay if he moored the boat in Massachusetts.
Liberals know that jobs are created by “small business” but are unclear about just what small business is. The small businesses who create jobs are the growing firms who employ upwards of 10 people and are expanding as they get more successful. Some 48% of the income of sole proprietorships, partnerships and S-Chapter corporations is reported on individual tax returns with income over $250,000 — the very people Obama wants to tax more.
Economist Alan Reynolds explains how it gets so confusing. He occasionally writes articles for major publications, for which he receives $300 -$500. He reports this on his tax return as business income. He has just become a “small business,” on the IRS rolls. Yet, when we talk about small business as the engine of job creation — we are not talking about Alan Reynolds. That suggests how very useless the statistics on small business are.
Obama’s goal is redistribution of wealth. The free market wants an emphasis on productivity, not redistribution. Yet most of the administration’s policies have gone to pay off liberal constituencies — the unions, teachers and the environmental lobby. This surely explains a good part of the anemic recovery. The president neither understands free markets, nor has any faith in capitalism. It shows.