So, the latest FedGov scheme to raise taxes is from the old, old playbook: Let’s raise taxes but only on millionaires.
Leaving aside the glaring moral problems with taxation per se, let’s consider some problems with the Buffet Tax. First of all - as Thomas Sowell points out in his book Basic Economics - incomes can vary widely from year to year, especially for small businesses and independent entrepreneurs. This is a very difficult point for government bureaucrats - whose pay, promotion and pension schedules are written in stone eons beforehand - to understand. A million-dollar earnings could be a one-time culmination of many years of work, effort, planning and so on. Tax schedules assume a regularity of income that does not hold for many people; these people are treated especially unfairly by the tax code.
Second, the populist appeal of the “Buffet Tax” is the idea that people with “so much money” clearly have more than they could conceivably “need” and, therefore, there can be little harm in separating them from a good deal of it. However, this idea also makes many presumptions about how people use their money that are simply not true. Here in Portland, Oregon, we recently had a Gypsy patriarch put on trial for tax evasion and several million dollars was seized and stolen by the IRS. Surprisingly, the IRS was later forced by the judge to return much of it even before the trial concluded because the patriarch was (legally) holding a lot of the money in trust for other members of the local Gypsy community - like a bank, the money did not even belong to him. Joint family ventures can generate apparently large income revenues under one household. The tax code tends to punish such joint family businesses but where is the evidence to believe that such ventures are not actually more efficient, productive and beneficial to society overall than the regularized, monoculture, cookie-cutter model that the tax code assumes?
Furthermore, it is generally true that people who generate large incomes are also more frugal with their money. As Steven Landsburg argues here, this is (contrary to Krugmanite economics) beneficial to the rest of us. The more money which is saved by frugal, high-income earners, the more valuable the money held in savings by the rest of us becomes. The more money invested by high-income earners, the longer the time-structure of production can become and the cheaper the production of goods becomes. Either use of money enriches all of us by either increasing the purchasing power of our money or decreasing the sticker price of goods and services. Therefore, it is detrimental to the interests of the public at large to transfer wealth out of the hands of frugal, investment-minded, high-income earners into the hands of government bureaucrats and welfare recipients. The populist rhetoric is merely a veil behind which stands actually anti-populist policy.
It is viciously untrue that millionaires are generally paying less than their fair share of taxes or that they are not part of the middle-class. $1,000,000 today has the same purchasing power as $178,772.43 did in 1971 by the government’s own cartoon CPI numbers. Millionaires were definitely considered rich in 1971 and someone earning $178,772.43 was definitely very well-off but it was hardly a rallying cry to “tax the $178,000+ income bracket!” In other words, the million-dollar number is blatant populism just like raising taxes on the $250,000+ bracket was. An eye surgeon and his wife - who owns two franchise McDonald’s - could pull down a million dollars in a year. They are very well-off to be sure, but hardly “the 0.1% ultra-wealthy” that own half the damn planet between themselves. In fact, if you look past the numbers to the occupations of people who make a million dollars in a year, most of them are not titular elites. Many of these people grew up in upper-middle class families and managed to make something of themselves. That’s their crime.
But the populist rhetoric of FedGov wants to make these people out like pampered nobility who make a living gladhanding at champagne socials and afterwards making dirty business deals in smoke-filled men-only lounges. The bar for entry to the Elites is significantly higher than the man on the street - who is vulnerable to this sort of populist rhetoric - understands. Being a billionaire - or, more accurately, belonging to a family with a net worth in excess of $1 billion - is the bare minimum qualification. Either having a title of nobility or being married into a family that does is also nearly requisite. The disconnect between the public’s perception of who runs the show and who actually runs the show is, in large part, responsible for the success of so many of these kinds pseudo-populist policies whose real effect is decidedly anti-populist.
Finally, forget trickle-down economics - trickle-down tax-brackets is more like it. Today, the poorest pauper who earns even $5 in income is taxed at a rate higher than the highest tax bracket when the Federal income tax was first imposed on Americans in 1913. While tax brackets have fluctuated wildly over the last 100 years, the steady devaluation of the dollar has created an ever-lowering threshold to higher taxes. For example, the above chart might give the impression that, by 1932, low-income Americans were paying taxes similar to today’s low-income Americans, but this is neglecting inflationary devaluation. In 1932, Americans earning $10,000 were earning the equivalent (by the government’s own CPI funny-math) of $165,361.31 today but were paying just 10% in taxes. So, you can see how inflation - even neglecting the fact that it is a tax in itself - combines with the income tax schedule to form an insidious “rachet” effect on tax-bracketing.
Clayton -