Taxing the Rich in America, Taxing Everyone as Rich in Europe

Posted by PITHOCRATES - September 24th, 2011

Spending is so Great the Only Way to get Serious Deficit Reduction is with Spending Cuts

Dan Greenhaus with BTIG looked at Obama‘s proposed Buffet Tax.  Crunched the numbers from the 2009 U.S. tax returns.  And found that the Buffet Tax is more politics than deficit reduction (see A Little Bit Of Math On The ‘Buffett Tax’ by Joe Weisenthal posted 9/19/2011 on Business Insider Politix).

Nonetheless, if we add up the $1,000,000 and above categories, we get taxable income of $623.6 billion that resulted in $177.5 billion in income tax paid, a rate of less than 28.5%. If we were able to somehow change that tax rate to say 35%, an increase of more than 7 percentage points, the income tax paid in 2009 would have been over $218 billion or an increase of a bit less than $41 billion. If we were able to do this over ten years, the U.S. would have extra income of $410 billion. All from raising taxes by seven full percentage points on those making income over $1,000,000.

Unfortunately, $410 billion is “only” about 7% of the deficit we expect to incur over the next ten years. That is not an inconsequential portion but considering the debate surrounding hiking tax rates by any amount, let alone generating an increase sufficient see a seven percentage point increase in taxes paid, as well as the negative consequences such a sharp adjustment would engender, this hardly seems to be the “only” place to go to achieve debt reduction.

The magnitude of the deficit is too great to pay with new taxes.  As it is now, the 2011 deficit will come in at $1.65 trillion.  A 7% tax rate hike would net an additional $41 billion.  Or $410 billion over ten years.  This would reduce the 2011 deficit from $1.65 trillion to $1.61 trillion.  Not impressive.  Remember, Standard and Poor’s wanted to see $4 trillion in debt reduction over the next decade.  And $410 billion is a long way from $4 trillion.

Take a close look at these numbers.  A $1.65 trillion dollar deficit.  And taxable income as reported to the IRS of $623.6 billion.  The deficit is 2.6 times the total taxable income from those making $1 million or more.  In other words, you could tax away all of their money and the government would still run a deficit.

The spending is so great that the only way you’re going to get serious deficit reduction is with spending cuts.  Because spending is big enough to cut to make a difference.  Unlike taxing the Warren Buffets.  Whose incomes aren’t big enough to make a difference.

So when Keynesian tax and spend liberal Democrats talk about serious deficit reduction it’s just misdirection.  They know they can’t reduce the deficit.  But that’s okay with them.  For that isn’t their goal.  They want to raise taxes for a different reason.  They like to spend.  It’s how they get power.  And votes.  But when you run such massive deficits it’s hard to spend more.  Unless you raise taxes.  And that’s why they want to raise taxes.  Not to reduce the deficit.  Which is impossible to do with tax hikes.  They’ve just run out of money.  And they want more to spend.

Left of Center Welfare States are Always Good for Vote-Getting

And if you think it’s bad on this side of the Atlantic, you should see what they’re doing on the other side.  The Europeans have a lot of social democracies.  Left-of-center governments.  With huge welfare states.  Which is always good for vote-getting.  But it comes at a price.  High taxes.  And lots of debt.

To keep spending at their levels of spending they have raised tax rates on the ‘rich’.  And lowered the threshold for being ‘rich’.  The Business Insider crunched the numbers and put together a little slideshow showing the tax rates.  And what it means to be rich in these countries.  We pulled the data from the slide show and put them into tabular form below (see These Are The Toughest Taxes For Europe’s High Earners by Nick Jardine posted 9/24/2011 on Business Insider Europe).

We calculated the numbers above based on the threshold salary that puts these taxpayers into the top tax rate.  And the tax rate.  All numbers are in U.S. dollars.  The numbers very a little from the Business Insider slideshow possibly due to rounding error.  Or other tax considerations.  But the numbers were close enough to fill in the blanks where needed.  Though it may not be completely accurate, the numbers should be close enough in magnitude for the purpose of discussion.

When they couldn’t Tax the Rich Anymore, they Taxed the Middle Class.  By Redefining them as Rich.

Depending on your political persuasion, you no doubt will draw different conclusions from these numbers.  A Keynesian liberal Democrat will say Germany isn’t taxing their rich enough.  That they are the richest of the rich.  And that they should probably tax everyone earning over, say, $100,000 at the highest rate.  Like in Greece.  A non-Keynesian will see it differently.  They will note that only the German economy is rich enough to bailout the poorer nations of the Eurozone.  Particularly Greece.  Meaning that the more rich people you let be rich the more tax revenue you will have.

A non-Keynesian will think it’s not fair that a rich German only gets to keep $3,581 from the $6,511 he or she earns every week.  The Keynesian will have no problem with that.  Of course, they may not think it’s fair that a Belgian only gets to keep $446 of the $892 he or she earns every week.  They’ll think it’s fair to take about half of what the rich make.  But they don’t think it’s fair calling someone rich who makes only $46,349.  Or calling someone rich who only makes $20,613.  Especially if they earn more than they do.  And currently pay no income taxes.

None of these countries started out at these income thresholds or tax rates.  They’ve lowered income thresholds through the years.  And they’ve raised tax rates.  Whenever their governments spent more money than they had.  Employing class warfare they vilified the rich.  Raised their tax rates.  And when they couldn’t raise tax rates on the rich anymore, they raised taxes on the middle class.  By redefining them as rich.  And they then paid the higher tax rates.  It’s gotten so bad in some countries that people who pay no income tax in America would be paying the highest tax rate in some European countries.  But it all starts with taxing the rich.

With Keynesians in Power you’ll never see Spending Cuts because that’s how Democrats Buy Votes

We have to be careful of what we ask for.  Such as taxing the rich.  Because we may be rich ourselves one day.  As the threshold for being rich shrinks over time.  First it was the billionaires.  Then the millionaires.  Then those earning $200,000 or more.  Then those earning $100,000 or more.  Down to as low as $20,000.

Fair is fair they’ll say.  So you’ll agree to make the rich pay their fair share.  And then those earning less than you will also agree to make the rich pay their fair share.  And by rich they’ll mean you.  Until all earners will be taxed at the highest rate.  To support those non-earners who vote Democrat.

But no matter how much they’ll take it will never be enough.  Because you can’t reduce the deficit/debt by raising taxes.  They’re just too big.  The only way you can reduce these is by reducing the thing that made them so big.  Spending.  But that’s not likely to happen.  As long as Keynesians are in power.  Because that’s how Keynesian tax and spend liberal Democrats buy votes.

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