Apparently some liberal lawmakers are advocating millionaire taxes as a way to help offset the massive deficits throughout the US. I can’t believe I have to explain why this is a bad idea. But here we are.
First, let’s break down where income comes from. There are two primary sources of income for most people - employment income and investment income. Employment income is your salary or wages, the amount you earn from working. Investment income is what you earn on your investments over the course of the year.
Right now, the federal income tax rate (for a single person) is 33% if you make between (approximately) $171,000 and $370,000 a year. After that, it goes to 35%. Then you pay state income taxes. Which, depending on where you live, could be anywhere from nothing (or practically nothing) to another 11%. Let’s pick a well known location for a point of reference. NY. Their high end of the state income tax is about 9%, last I checked. So someone making, let’s say, $400,000 in employment income will pay approximately 44% of that in income taxes. Now, I personally could live on the remaining 56% of that quite comfortably, even in NY. The new millionaire’s taxes they’re proposing could add another 10% or more to the taxes. So the person making $400,000 would actually be bringing home less than half of what he is technically getting paid. I hear some of you saying “that’s still a lot of money.” And maybe it is. But what is the person doing to earn that money? If they’re working 12 hours a day, six days a week… well, if I were that person, I’d be rather upset that I don’t even get to keep half of what I earn. But people whose primary income is employment income aren’t the real problem with the millionaire’s tax, even though they’ll suffer the most from it.
Before I get into discussing investment income, I have to point out to the more idealistic people out there that a plan is only worth investing in if it has some hope of success. A plan that gives short-term benefits and causes long-term harm isn’t a good plan, no matter what the idiots in office would like you to think.
The truly wealthy people in the country have often amassed assets such to the point that they don’t have to work. They don’t rely on employment income. Once you earn your first few million or so, a savvy investor can live on a portion the interest for the rest of his life and watch his investments grow his fortune. Let’s take NY again as our example. There’s a federal capital gains tax on “short term capital gains” and on “long term capital gains.” Short term is anything that’s an investment of a year or less. Long-term is something that goes on for more than a year.
Short term capital gains are taxed at the same rate as the income tax. So, for the wealthy persons we’re discussing who are likely earning hundreds of thousands if not millions a year off of their investments, the tax rate on short term capital gains is already likely around 35%. Long term capital gains are taxed at 15%. Let’s add in the state tax rate on capital gains now. In NY, it’s almost 7%. So they’re getting taxed at 42% and 22% respectively. Let’s add in the millionaire’s tax at a modest 10% rate now. They’re losing over half of their short term investments and about a third of their long term investments.
You might argue they can afford to lose it, that they can afford to get by with a little less. That’s not the point. Hell, my point isn’t even that it’s immoral to jack their taxes up for no other reason than because they earn more money than the rest of the populace (though it does seem kind of messed up to me, trying to force them to pay to fix idiot legislator’s screw-ups). No, my point is this; those investments of theirs? They can invest elsewhere. Instead of putting their money into the NY economy (if NY were to pass a state millionaire’s tax) they can put it into the SC economy and that would seriously harm the NY economy. If the US passes a federal millionaire’s tax? The US has a provision that says that all US citizens are subject to income and capital gains taxes no matter where in the world their investments and employment are. This means that a contractor who hasn’t seen the US in 10 years who happens to be a US citizen has to pay the taxes of the country where he’s residing and working and still pay US income and capital gains taxes. There have been a lot of people working abroad over the past decade or so who, because of this, have decided to expatriate. They’ve decided to forsake their US citizenship and take citizenship where they are to avoid paying taxes to a government halfway across the world (taxation without representation, anyone?). What makes you think millionaires couldn’t do the same? What incentive would they have to remain US residents? Even if some of them decided not to expatriate, they still don’t have to keep their investments in the US. All that money which, through investing in US businesses and investing with US banks and firms, stimulates the US economy could just as easily go into another country’s economy. What country wouldn’t benefit from a few billion dollars of venture capital being injected into their economy? Even if they still paid taxes, their investment dollars would be gone. And they wouldn’t be paying the state taxes, only the federal ones.
Liberal legislators are a romantic, idealistic lot of idiots with their feet in the clouds and their heads in the sand. And no, I didn’t mess that up, I meant it that way. It’s true that raising taxes could generate some more capital for the federal government. But it sure as hell wouldn’t stimulate the economy. It wouldn’t create more jobs. It would encourage individuals and businesses to try and cut costs and spend less money, which means fewer jobs, not more. Between the house and senate, there are approximate 535 people in the two houses of congress. This isn’t counting the various staffers, special seats or executive branch seats. Their base salary is approximately $175,000 a year. That rate also applies to various federal judges and other government personnel. I’m sure if you looked into the financing, you’d also find they don’t actually pay for much. There are all sorts of perks to that kind of job. I think they could get by with $50,000 less a year in salary. You’d save over twenty six million dollars a year off of just those 535 seats. That’s not a big drop in the bucket, I know. But I, for one, would at least like to see our leaders – in a time of financial crisis – be willing to sacrifice a little bit out of their own pockets to contribute to fixing the problem instead of expecting the citizenry of the US to foot the bill for their screw-ups. Leadership by example, you know?
We can’t spend our way out of this deficit by throwing money at programs that only perpetuate the problems. We need to put people to work. We need to create more than just temporary employment. We spent our way out of the great depression, yes. But we did it by creating jobs. People going off to war, production of weapons, troop transports and supplies – the war created a demand for soldiers and for supplies to equip them with. The government wasn’t just “giving” people money. The government was actively putting people to work. Soldiers got paid by the government. And to supply the soldiers, the government ramped up their purchasing of various supplies that were necessary to wage a war. Manufacturing and construction were ratcheted up. And since so many people were off at war and the demand for supplies was so high, employment was plentiful for a great many people.
We hit a big hitch when the war was over and our soldiers came back and left the military and found that there weren’t any jobs, though. Thankfully, the money that had been earned during that time period allowed a lot of people to start their own businesses, allowed existing companies to grow and expand and create more jobs… it created a situation of ongoing positive growth – with some hiccups. But the growth wasn’t sustained through government spending. The growth was sustained through private spending and people working. Jobs are the only proper measure of a healthy economy. And our government needs to stop throwing good money after bad and sinking further and further into debt and expecting unemployed Americans to somehow pay for it all.