Tax the rich
From the Desk of Ernie Goss
(Professor of Economics, Creighton University, Omaha)
The Politics of Economics:
Super Rich Meet in Omaha and Propose Tax Hike
Millionaire Hillary Clinton and billionaire Warren Buffet met in Omaha
earlier this month to trumpet higher income tax rates on upper income
earners. Ignoring the data, the two super-rich, joined by income
laggards Dallas Maverick owner Mark Cuban and former New York Mayor
Michael Bloomberg, argue that levying higher tax burdens on workers in
the top income bracket will reduce income inequality.
However between 1980 and 2013 when income inequality, as measured by the
Gini Coefficient, expanded by 22.2% the share of federal income taxes
paid by the highest one-fifth of earners rose from 64.7% to 88.0% while
the share paid by the lowest one-fifth declined from +0.1% to -4.0%
(i.e. tax rebates greater than tax payments). Even the middle income's
share dropped from 10.7% to 3.9% over the 33 years.
Taxing high income individuals more heavily does not reduce income
inequality because excessively high tax rates on these earners:
Discourages individuals from pursing higher education and training
to increase income;
Encourages individuals to reduce work efforts and to increase
leisure activity;
Restrains small business formation and risk taking by entrepreneurs
seeking greater financial returns;
Incentivizes individuals to spend excessively on goods and services
that are deductible from taxes; and
Encourages high income individuals to move to lower tax nations.
Unfortunately for the economy, envy economics, as evidenced in Omaha in
August, remains a viable political tool by generating votes and
self-righteous smugness from its devotees.
Read more articles on Professor Goss' blog Economic Trends.
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