Investors Bussniess Daliy
About the Rich.
Here is a compelling statement, Congressman Patrick Kennedy, D-RI (Rhode Island for those of you in public schools) recently declared to fellow members at a Washington nightspot, “I don’t need Bush’s tax cut, I’ve never worked a F***king day in my life”
A number of other rich people, i.e. Warren Buffet, have at various times likewise declared that they do not need what are called “tax cuts for the rich”. But whatever political points such rhetoric may score, it confuses issues that are long overdue to be clarified.
One of the most basic confusions is between income and wealth. You can have high income and low wealth or vice versa. We have all heard of athletes and entertainers who have earned millions, that ended up broke.
There are also people of relatively modest incomes who have saved and invested enough over the years to leave surprisingly large amounts of wealth to their heirs.
Income tax cuts apply to income, not wealth. So the fact that some rich people say they don’t need a tax cut means nothing because they are not getting a tax cut on their wealth, since their wealth is not being taxed anyway.
Looked at differently, high tax rates hit people who are currently earning high incomes- usually late in life, after having worked their way up in their professions over a period of decades. Such as myself.
Genuinely rich people who have never had to work a day in their lives –people like Kennedy- are unaffected by income taxes except on what they are currently earning, which may be a tiny fraction of what they own.
In other words, soak-the-rich tax rates do not, in fact, soak the rich.
Someone who eventually works his way up to $100,000 a year will qualify as “rich” in liberal rhetoric, but by the time you reach that level you may have a few kids, college tuition, mortgage etc. You’re not exactly buying yachts.
Another fundamental confusion over tax rates with reduction in tax revenues collected by the government.
One of the enduring political myths of our generation has been the claim that the rise in deficits during the 1980s resulted from President Reagan’s “tax cuts for the rich.”
Tax rates were cut. Tax revenues were not.
More tax revenues were collected during every year of the two Reagan administrations than had ever been collected in any previous year in the history of the country. Nor was this experience unique.
When President Kennedy cut tax rates during the 1960s, tax revenues went up. The whole point was –and is- to encourage more economic activity and more activity generates more tax revenues, even at lower rates.
The same thing happened back in the 1920s.
Why, then, were there federal deficits during the Reagan administration? Because Congress spent even more money the then rising tax revenues brought in.
There is no amount of money that congress cannot out spend.
Although these were christened “the Reagan deficits,” all spending bills originate in the House of Representatives- and Reagan was never a member of congress. Indeed, the Republicans never controlled the House of Representatives during the Reagan Years.
Only after the Republican party gained control of the house in 1994 were there budget surpluses-for which president Clinton took credit, even though he too, had never been a member of Congress.
It is fascinating to see congressional Democrats, who have for decades been spending the country into growing deficits, suddenly expressing shock at the current deficits that have occurred while President Bush is in the White House- and the country is at war.
How serious are these deficits? As with all debts the burden depends on what your income is. As a percentage of national income, today’s deficits and national debts are far below what they were when Democrats were spending.
