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We Need More Rich People
01/03/2011 12:01 am EST
Let’s raise a glass of champagne--or bottled water--and toast to Wealth in the New Year!
Let’s root for the rich--and for having more of them. Let’s hope for more Google or Groupon-type billionaires. They are living proof that America is still the land of opportunity.
It’s not so fashionable to be wealthy in an economy beset with unemployment, falling home prices, and recession. For the past few years, it’s been popular to shop at Marshalls --home of discount pricing on designer duds--and avoid Neiman Marcus (except for the sales, of course). It’s less chic to drive a Maybach than a Fisker Karma.
Dozens of billionaires have signed a pledge to give at least half their wealth away on death. (That would still leave plenty for the next generations, but who’s counting except Bill Gates’ dad?) Still, there’s outrage that the wealthy can exempt $5 million of the assets they accumulated from the death tax, which could presumably be used to fund more “worthy” government programs.
Discreet restraint is in style, whether in clothing, autos, jewelry, or estate planning. That’s because everyone’s talking about the wealth gap – the difference between the earnings of the truly rich and those who make do on low-paying jobs or government benefits.
The wealthy aren’t speaking up these days to defend the capitalist system that created their riches. Perhaps that’s partly because of the egregious and inexcusable behavior, now revealed, in the financial services industry, and other corporate fiefdoms.
The most public display of the arrogance of wealth came two years ago as auto industry CEOs flew to Washington in their private jets to plead for government aid. Shame on them, especially since it wasn’t their money that bought and fueled those G-5s. Ever since then, it’s been downhill for public displays of wealth.
Still, the massive rush to punish the wealthy through higher taxation could have a huge negative impact on all of us. That’s because even if we taxed away all their wealth, either through the income tax, the capital gains tax, or the estate tax, it still wouldn’t be enough to fill our annual deficit gap. And it would most likely make the budget hole even deeper.
Who Pays Income Taxes, Anyway?
To understand that reasoning, you have to take an honest look at where all the income tax money is coming from. The following analysis comes from the Tax Foundation, based on the most recent IRS data.
In 2008, the last year for which hard data are available, the top 1% of the nation’s adjusted gross income earners earned 20% of the total national income. Those are the truly wealthy. And they paid 38% of the nation’s taxes.
That year, the top 10% of the nation’s AGI earners earned 45.77% of the income, but they paid in 69.64% of the total taxes paid that year.
In fact, the top 50% of the nation’s AGI earners, earned 87.25 percent of the total income but they paid in 97.30% of the total income taxes.
As for the bottom 50 percent, they get a pretty good deal. In fact, many of those who pay no income taxes get refunds from the government. According to the Tax Foundation, more than 23 million returns received refundable credits in excess of the employee's share of payroll taxes. Not only are they getting money back – but they are effectively not paying for the Social Security and Medicare benefits they will eventually receive.
Redistributing Wealth Destroys Incentives
There comes a point of diminishing returns from higher tax rates, as Dr. Arthur Laffer pointed out 30 years ago. But you don’t have to believe a curve drawn on a napkin – and you don’t need to know exactly where that point -- the moment where the most creative and intelligent people decide it’s not worth it to work harder or earn more – comes into play. It’s a subjective, but very real factor.
Bjorn Borg was just a tennis player – but smart enough to know that he’d better get out of Sweden if he wanted to keep and grow his money. Similarly the Beatles dodged the then-confiscatory British tax rates. When wealthy people leave, or stop working, there goes the tax base.
The politics of envy has never achieved economic growth, because it has at its core a desire to redistribute the existing wealth, instead of creating incentives to create growth that can lift an entire society.
Redistributing wealth has never made a country wealthier. In fact, we’ve seen the ultimate and most extreme example of the destructive force of redistribution in the old Soviet Union, which tested that theory to extinction.
Today, we are told that there are too many “rich” people. Instead, we should think that there are not enough rich people.
Because only wealthy people can pay the taxes that will fill in our budget deficits.
Only wealth directed to risk-taking can create the jobs that lift people off of unemployment benefits.
Only the incentive to build more wealth can create the economic growth America needs to pay down its debt and lead to a better future.
So here’s a toast to the rich. May they invest wisely. And may we have many more of them in 2011.
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