FUNDAMENTAL TRUTH #62: “The government’s great dilemma is that the middle class has both the money and the votes.” -Old Pithy

Posted by PITHOCRATES - April 19th, 2011

Figures don’t Lie but Liars Figure

Mark Twain said figures don’t lie but liars figure.  And there’s been a lot of that going around.  Lying.  Especially about taxes.  Where the rich just can’t catch a break.  They pay far more tax dollars than the poor/middle class.  Yet you wouldn’t know that based on the political rhetoric coming from the Left.  And the incessant drive to raise the top marginal tax rates.  To make the rich pay their ‘fair’ share.  Or punish them.  For being rich.  So we can lower the tax burden on the little guy.  The working class people struggling to put food on the table for their families.

Of course, anyone taking the time to crunch the numbers, or read a history book, will see something completely different.  And that the Left can only advance their agenda by lying.  Because people with a job want to keep their job.  And they see the Left’s agenda as anti-business.  And job killing.  Anytime you hear government talk about being ‘fair’ look out.  Chances are you are about to be screwed.  For their idea of fairness and equality is truly Orwellian.  The Left’s idea of equality is when they are more equal than everyone else.

So they champion the poor/middle class.  Say they are looking out for their interests.  But they’re not.  They just want their money.  And their votes.  So they’ll say whatever they think they want to hear.  Anything to maintain their positions in government.  The ruling elite.  And one of their most effective tools is class warfare.  At the heart of which is tax policy.

Taxing the Rich Transfers Tax Burden to the Middle Class

There is a fundamental misunderstanding about tax policy in America.  Everywhere, really.  You see, they’ve beaten it into our heads that the way to get the rich to pay their fair share is to increase their tax rates.  You do that and you transfer the tax burden from the poor/middle class to the rich.  The funny thing is, though, when you raise the tax rates on the rich the exact opposite happens.  You transfer the tax burden from the rich to the poor/middle class.  How can this be, you ask?  Well, let me explain.

Consider two income examples.  Someone who makes $50,000 per year.  And someone who makes $1,000,000 per year.  Based on the 2008 tax tables (with a top marginal rate of 35%), the federal income tax each pays is approximately $16,980 and $454,000, respectfully.  Now, what do you notice about these numbers?  That’s right.  The $454,000 is a lot bigger than the $16,980.  It’s over 26 times the amount of taxes the person earning $50,000 pays.  Now think about that.  If only one more person becomes a millionaire (let’s say an entrepreneur quits his day job and creates the next great invention), the government will collect the same amount in taxes it would take from 26 new $50,000/year jobs added to the economy.  Let’s say 2 venture capitalists strike it rich and both become millionaires.  They would add the same tax revenue it would take 52 new $50,000/jobs to generate.  Three new millionaires = 78 new $50,000 jobs worth of taxes.  See a pattern?  The more millionaires there are paying taxes the less the poor/middle class have to pay in taxes.  Or, conversely, the fewer millionaires are paying taxes the more the poor/middle class have to pay.  So the more millionaires there are paying taxes, the more the tax burden transfers from the poor/middle class to the rich.

Well, based on that, the best thing we can do for the poor and middle class is to make as many millionaires as possible.  And how do you do that?  It’s pretty easy.  Sort of like a dog having puppies.  They already know how to do it.  They don’t need any special help.  All they need is for us to get out of their way.  And give them a business-friendly environment.  Where a small business owner will risk his or her life savings on that business to get rich.  Or a venture capitalist will risk his or her money on an untried entrepreneur with a really good idea to get rich.  And how do you get people to take risks and invest large sums of money?  By giving them a chance to get rich in the process.  And you don’t do that with high tax rates.  Because high tax rates increase the ‘cost’ of these investments.  And when the cost gets too high, they look for other things to do with their money.  If the return on investment is taxed to the point that they can make the same return without any risk, they won’t take any risk.  And just leave their money in the bank.

The more Millionaires we have the Less Taxes the Middle Class Pays

Of course this all makes good sense.  But bad politics.  Especially on the Left.  For they are all about fairness and redistribution of wealth on the Left.  And you can’t be fair and redistribute wealth unless you demonize the rich.  Because you have to take wealth from someone before you can redistribute it.  And who has wealth?  Why, the wealthy, of course.  Who are greedy.  Who don’t pay their fair share of taxes.  And profit by exploiting the poor/middle class.  Or so goes the liberal mantra.  So to show how much they care for the poor/middle class, they try to raise taxes on the rich.  By constantly trying to raise the top marginal rates.  Of course, as noted above, doing this actually hurts the poor/middle class.  By making them pay a much larger share of the total tax burden than the rich pays.  Let’s look at some numbers.

We keep hearing about this evil 1% who has the majority of the wealth in this country.  So let’s look at this by the numbers.  One percent is one in one hundred.  So let’s assume we have 100 taxpayers.  One millionaire who earns $1,000,000 per year.  Twenty ‘poor’ people earning $15,000 per year.  And 79 ‘middle class’ people earning $50,000 per year.  Based on the 2008 tax tables, the annual income tax each owes (going from poor to rich) is approximately $4,500, $17,000 and $454,000.  Their total tax contributions (in the same order) are approximately $91,000, $1,342,000 and $454,000.  Or, as a percent of the total, 4.8%, 71% and 24%.  Please note that it’s the middle class that pays the bulk of the tax burden (71%).  Even though they each pay only a fraction of what the millionaire pays.  Because one millionaire can pay only so much.  But the ‘fraction’ 79 middle class people pay adds up.  The sum total of their taxes equals approximately three times what that millionaire pays.  Which proves the point that the fewer millionaires there are the more the poor/middle class has to pay in taxes.

Now let’s say nine people prospered very well and moved from the middle class to the rich.  There are still 20 ‘poor’ people.  But with the 10 people that now earn $1,000,000 per year, there are now only 70 middle class people earning $50,000 per year.  This changes the total tax contributions (going from poor to rich) to approximately $91,000, $1,187,000 and $4,538,000.  Or, as a percent of the total, 1.6%, 20.4% and 78%.  Now the rich are paying the vast majority of all taxes (78%).  Which proves the point that the more millionaires there are the less the poor/middle class have to pay in taxes.

Figures don’t Lie but Liberals will Figure

Well, sure, you can use all your facts and figures to show things that make sense.  But making sense doesn’t necessarily apply in politics.  Because tax policy is a lot more than just funding the government.  It’s about winning elections.  And the one great dilemma in all of politics is this.  The people with the most money to tax are in the middle class.  Because of their numbers.  They may pay less per person than the rich but their numbers add up.  And they are the largest voting bloc.  Because of their numbers.  Which presents quite the problem.  Politicians want their money.  But if they take too much of it they may lose their votes.  So what to do?  You take their money.  While making it look like you’re punishing the rich.

The more government spends the greater this problem gets.  Deficits grow larger.  Which adds to the national debt.  Interest payments on that debt take up an ever larger part of the federal budget.  Add that to out of control growth of entitlement spending and what do you get?  A big problem.  And greater deficits.  Which are getting harder and harder to finance.  Soon you’re borrowing money to pay your borrowing costs.  You need cash.  Or you need to cut spending.  And you know you’re not going to do that.  Because cutting spending doesn’t help win elections.  So you look for more cash.  And you can’t go the easy route and just create more millionaires.  Not after demonizing them so much.  Doing that would be tantamount to saying you were wrong and/or lying all these years.  Besides, the anti-business environment currently in place doesn’t encourage any risk taking by the rich.  So they’re sitting on their money.  Which leaves the middle class.  So we start hearing code words.  Fair share sacrifice.  Tax the rich.  It’s not fair to give millionaires and billionaires tax breaks paid by the poor and middle class.  This means the poor/middle class is about to get screwed.  Either by higher taxes (or reduced tax breaks and credits).  Or they’re going to raise the top marginal tax rates which will transfer more of the tax burden from the rich to the poor/middle class.

Of course, screwing the poor/middle class is what it’s all about.  The Left uses them.  All of the time.  Through lies and deceit.  For our lives would be better if we had a lot more millionaires.  And less progressive tax rates.  That encouraged more economic activity.  And created more jobs.  But the liberal left could care less about that.  Based on the evidence.  And history.  When they run for office they run as moderates.  Because they know they can’t win elections running as liberals.  Barack Obama was the most liberal senator in the Senate.  Yet when he ran some were comparing him to Ronald Reagan.  And you only lie like that for one reason.  To hide who you really are.  Tax and spend liberals.  Who have made the middle class the bank for their tax and spend policies.

So while figures don’t lie, liberals will figure.

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