Taxing "The Rich"


Obama is trying to get tax hikes on "the rich" through Congress to pay for all his promises to other people. But his simplistic Leftist worldview seems to have prevented him from seeing who the people are whom he proposes to tax more. Who are the people earning over $250,000 a year whom Obama wants to hit? Income is a sort of a pyramid. There are a few very rich people at the top but most of "the rich" whom Obama wants to tax are near the base of the pyramid: fairly close to that $250,000 mark. And most of them are hard-working people: doctors, dentists, businessmen and professionals generally.

So will they just pay the extra tax and grin and bear it? If the tax increase were limited to paying 39.6% instead of 33% on any income above $250,000, those just over the mark might not think the change worth bothering about -- and sneering Leftist Jonathan Chait makes that point. But Chait fails to acknowledge that there is a lot more to Obama's tax proposals than the new top rate. Obama also wants to cut out a lot of tax deductions available to those earning over $250,000 and he also has proposed increasing their tax rate on capital gains and dividends from 15 to 20 percent. So many professionals will take a fairly big hit if they carry on as before. So lots of them will reorganize their affairs so that Obama gets exactly nothing extra from them.

And The Corner has a collection of emails from high earners that gives lots of detail about what many of them will do. One example:

"My wife and I are both pediatricians. We own our own practice together. We have one PA and 7 other employees. We each gross about $200 K a year. We have 3 young children at home, 2 of whom are not in school. We also employ an in-home nanny. My wife has been torn for years about not being at home for these children, which are our biggest investment in the future. We operate parallel S corporations as PC's, with a 50/50 ownership of the LLC that is our business. We file taxes jointly. After crunching some numbers concerning the President's tax hike proposals, I have come to the following conclusions. If the President's plan is enacted, we will do the following:

1. My wife will become a stay at home mother.

2. At least 3 of my 7 employees will be released.

3. The practice will downsize to a smaller office space, i.e. less rent.

4. The number of patients cared for on a daily basis will drop by 40%.

5. My wife will come out of the forced ER call schedule for good.

6. I will gross $249,999.00 a year, exactly.

7. The net income of our personal home will decrease by less than $10 K a year from where it would have been if we changed nothing.

So a lot of important service providers will reduce the services they provide in response to the simple-minded ideas of the simple-minded Leftist in the White House -- and America will be the poorer for it. Wealth is not money. Wealth is the goods and services that money can buy and reduced services available reduces the total national wealth. And that's no abstraction. As one of my medical correspondents notes:

"Seeing that almost half of doctors are women, and most are married and many have children, it should be obvious that many will reduce their hours worked. And with all the problems that Obama Care will create, there WILL be a shortage of doctor hours to care for patients. So EVERYONE will EQUALLY WAIT IN LONG LINES FOR CARE.

Another relevant excerpt which shows that the loss of wealth will be large:

"President Lyndon Johnson's administration was known for his War on Poverty. President Obama's will become notable for his War on Prosperity. We're speaking, of course, of Obama's plans to hike income taxes on the most wealthy 2 or 3 percent of the nation. He's not just raising the top rate to 39.6 percent; he's also disallowing about one-third of top earner's deductions, whether for state and local taxes, charitable contributions or mortgage interest. This is an effective hike in their taxes by an average of about 20 percent.

And soon the next shoe will drop - he'll announce that he's keeping yet another of his campaign promises: to apply the full payroll tax to all income over $250,000 a year. (Right now, the 15.3 percent Social Security tax only applies to the first $106,800 of income - you neither pay the tax on income above that, nor accumulate added benefit.) For many taxpayers in this bracket, this hike will raise their total taxes by about half. Finally, he's declaring war on investors by raising the capital-gains-tax rate to 20 percent. These increases are politically insignificant: The top 2 percent of the nation casts only about 4 percent of the votes, barely enough to attract the notice of even the most meticulous pollsters. But they have enormous economic significance. Those who earn more than $200,000 pay almost 60 percent of America's income taxes and account for a third of its total disposable income. If these spenders and investors are hunkering down, waiting for the revenuers to beat down their doors, their confidence will be anything but robust. Their spending will drop; they'll be unlikely to invest (except in new tax shelters)."

So Obama's increase in the tax rates could well bring about not an increase but a REDUCTION in the amount of tax revenue received.

Posted by John Ray.