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Taxing the richest

David Harley | Tuesday, April 19, 2011

Ryan Williams (April 14, “Who wants to tax a millionaire?”) makes a series of undocumented assertions more suited to talk radio than to these pages.

He cites Hauser’s “Law” to assert that federal revenues are always about 19.5 percent of GDP, regardless of the top rate of income tax, which is therefore irrelevant to fiscal deficits. The proportion was over 20 percent in 2000. It has been under 15 percent in 2009 and 2010. Five percent of GDP is about $750 billion.

He denounces the top level of federal income tax, currently at 35 percent, as unfair and asserts that any increase would stifle innovation. At no time between 1932 and 1982 was the top rate below 70 percent. Did that stifle innovation?

He notes that the top 1 percent of earners pay about 25 percent of all federal income tax revenues. He does not note that the income of this 1 percent is over 20 percent of all incomes. The proportion received by the top 1 percent has more than doubled over the last 30 years. That of the bottom 90 percent has declined. That of the bottom 25 percent has declined by over 30 percent.

He also omits to mention the difference between marginal and effective tax rates. According to the IRS, the 400 most affluent households had an average income of $345 million in 2007. They paid out 17 percent of this in tax.

He insists that it is the rich who create jobs. Despite all the tax cuts, there was less than a tenth of 1 percent of additional jobs created during the eight years of President G. W. Bush. It is not private investment decisions but market conditions that lead to job creation.

Opposition to progressive rates of taxation should be argued honestly, on ideological grounds. Mr Williams cries that the wealthy should not have to support “freeloading Americans.” Traditionally used against African-Americans, this argument now targets the millions of unemployed, poor children, the sick and the elderly. Citizenship and mutual support are gutted on behalf of plutocracy.

Why should bankers care about the health, housing and education of the poor? Even if morality is rejected, mere prudence might suggest some answers.

David Harley

Faculty, History Department

Apr. 17