In a recent Chicago Tribune article entitled Graduated tax could narrow income gap, Melissa Harris argues for a progressive tax or graduated tax system. Illinois currently has a flat tax. Harris, and others, would like to see that changed at the state level; as well as to see Obama’s tax increases implemented. Somehow they believe the myth that a higher tax on the “rich” helps the “poor.” The irony is, that simply taking money away from the “haves”, doesn’t help nor empower the supposed “have-nots”.
I must admit, I’m at a loss when people espouse this mythology without any statistical data to bluster their cause. Harris’ article exposes a number of problems with the “tax the rich mentality”—although I’ll limit my comments to just three. First, those who talk about income inequality never talk about raising the economic viability of the poor. They always talk about taking other peoples money and distributing it as they see fit. To her credit, Harris does attempt to challenge the notion that the incentives for doing well will be hampered with an increase in taxation. She concludes that tax increases for the wealthy will cause them to stop working. However, she has this wrong. The rich will always work. They will just move their money to tax sheltered entities (e.g., bonds, securities, or overseas). Unfortunately, the people who will stop working are those getting “free money” from the government. Just take a look at our state of affairs. We have more people on food stamps than at any other time in our history. The fact is, the more government aide you make available—the more people will determine to use it. The consequence becomes increased income inequality because the rich continue to work, while others simply settle for government largess.
Secondly, when has making the income of everyone equal ever been the goal of our society? Or, better yet even a good idea? Who believes that a college dropout should make the same as a neurosurgeon, lawyer or the president of the United States? Now, we know it’s not impossible. We have countless examples of athletes, entrepreneurs, and politicians with limited education who have had financial success. However, the government had nothing to do with that. Higher taxation wasn’t the reason they were able to achieve. If liberals are so intent on equalizing income why don’t they take a salary cut next time they are offered a raise? Why would anyone go through all the pain and suffering it takes to get advanced degrees, climb the corporate ladder, do internships, work 60 to 80 hour work weeks, etc., simply to have their earning potential confiscated by the state in higher taxes? A higher tax keeps folks from becoming rich, or middle class—and more often than not, keeps the poor wards of the state. In general, higher salaries or incomes are the reward for innovation, education, production and hard work. The potential for a better standard of living is one of the impetuses for personal achievement. If you take that away many people will cease to be productive. Why work if you can get money for doing nothing?
Lastly, there is this naïve assumption; generally speaking, that money taken from the rich will in someway help the poor of society. There is simply not one statistic (that I know of) to make this case. The truth is, we’ve been asking the wrong question; How do we fight poverty? Rather, we need to ask how do we create wealth? Instead, of focusing on income we need to focus on productivity, achievement, savings and investment. Giving people money does not make them better off in the long run. The goal should be to assist in encouraging them to make their own money (while providing tools for understanding how best to make their money work for them). Fortunately there is one tax initiative that helps accomplish these goals—that is the national sales tax, or otherwise known as the Fair Tax.
To start with, the Fair Tax doesn’t care how much money you make. It doesn’t tax labor, income, productivity, savings or investment. It taxes consumption. The amount of tax paid is based on the amount of money you spend on products and services. This helps the poor in several ways. 1) They get to keep all their earnings. No money is deducted for federal taxes. 2) Under the Fair Tax, the poor pay no net taxes. 3) The cost of hiring new employees is reduced because businesses aren’t required to pay FICA. Thus, the cost for doing business is reduced for both the “Mom and Pop” store, as well as the “Big box” stores. 4) Easy compliance for everyone makes doing business more profitable and thus stimulates the economy. 5) Capital gains taxes are abolished, which brings home corporate money hiding over seas and in the long run boosts the economy.
The Fair Tax also increases incentive to work for everyone. No longer will “Uncle Sam” unduly hold your money. Your earnings can work for you in savings and investments without worrying about capital gains taxes. Both poor and rich will be dealt with fairly. Prosperity will lift everyone’s standard of living. While it won’t ensure economic parity—it will increase opportunity and economic viability, which is what we really want. It will increase the incentive for the poor to move from poverty to prosperity. It will increase hiring, savings, investments, and more; and will with it, harness the earning potential and productivity of every American from the richest to the poorest. That’s how the dis-incentivizing of taxes on wealth creation will disappear opening the door to economic empowerment for all.