Taxing the Rich

October 13, 2001

Prologue:
My therapist tells me that I must vent some steam for the sake of my own health. And since I'm too lazy to go to the gym, and happen to be in good with the editor of a nice, if seldom viewed , website (let's just say I'm sleeping with his wife), I thought venting through an opinion column a suitable alternative to real work. Now, those of you who know me know that A) I'm a political junkie and B) I love to complain (my father once told me that I could go to an orgy and complain about the grapes). I will strive to combine both in this column, mainly by complaining about politics. My best attempts will be made to keep it good-natured and, as always, I welcome any and all retorts…through e-mail or, preferably, through a posting in the Virtual Lounge. So, without any further ado...

One of the things I noticed during my year of study in England, other than the bad teeth, was the sophistication and seriousness of their political debate. It seemed as though, at will, I could turn to any one of their three television channels and, between cooking shows, hear an intelligent dialogue between people with opposing views. They made arguments and counterarguments. They attacked conclusions with logic, challenged myth with fact…they attempted to convince my mind that they were right and that I should side with them. America, it seems, has very little of that. Our politics have degenerated into cheap appeals to our emotions with sound-bites, bumper stickers and clichés, which are then propagated in a dogmatic, nearly religious, fashion. Arguments are replaced by "spin." Spin is simply molding any given set of facts to fit a predetermined conclusion (i.e. sound-bite, bumper sticker or cliché). A great example of spin is the "tax cuts for the rich" retort offered to any and all proposed cuts in the Income Tax (another great British invention...thank you William Pitt). Let's start with an exercise:

Person A earns $1,000,000 per year. He is rich.

Person B earns $10,000 per year. He is one of The People.

Since we have a compassionate tax code, let's say that we tax Person A at 40% and Person B at 10%. That means that we collect $400,000 from Person A and $1000 from Person B, for at total of $401,000. Now let's say we have Politician A who believes in lower taxes as a matter of principle (100% taxation being slavery etc...) and wants to cut taxes, but, being compassionate, wants to cut them more for the poor than for the rich. He offers a 50% reduction in tax rate to Person B and a 5% reduction to Person A. "Vote for me" he says because his tax cut favors the poor by 10-fold (50% vs. 5%). But wait: he has an opponent who (though he won't admit it) believes in high taxation as a matter of principle (From each according to his abilities…). Politician B points out that, with the cuts, Person A saves $2000 (5% of $400,000), while Person B saves $500 (50% of $1000). Thus the tax cut "costs" the government $2500 with 80% of the money ($2000 of $2500) going to rich Person A! It's clearly a tax cut for the rich friend of Politician A.

The beauty of this "argument" is that A) it works for any Income Tax cut (in the above example you could eliminate the tax on the poor and still give 66% of the money to the rich) and therefore B) offers a wonderful alibi to those who would oppose all income tax cuts (remember, they oppose them on principle) by allowing them to claim that they're holding out for a "middle-class tax cut" (an impossibility according to their math).

Now some facts: In the year 2000 the top 1% of wage earners paid 37.4% of all Federal income taxes collected. The top 5% - 56.47% of the income taxes; The top 10% - 67.33% of the income taxes; The top 25% - 84.01% of the income taxes, and the top 50% - 96.09% of the income taxes. That's right, the bottom half of earners paid 3.9% of the income taxes (in case you were wondering, the top 1% of earners earned 20.8% of all the income).

Conclusion: "Tax cuts for the rich" is a redundancy when viewed (incorrectly) in terms of absolute dollars as opposed to percentages. Furthermore, with the poor paying essentially no income taxes, another issue is raised: When any "across-the-board" tax increase is up for a vote (directly or indirectly), at least 50% of the eligible voters are basically unaffected by the hike. This leads to the fundamental inequality of one group voting to raise the taxes of another group...Representation without Taxation.

Solution: There are several (the flat tax, National sales tax etc...) but fair taxation in a free society requires that those deciding on a tax feel the effects that tax. Then we could truly vote on principle.