Tax The Rich More? Instead, Equalize The Capital Gains Tax And Make The Business Tax Code More Progressive
Americans favor a tax hike on the wealthy according to a poll conducted by Morning Star and Politico. The result is not surprising. The US National Deficit is set to remain at the trillion dollar mark for years to come while the US National Debt will eventually lead to a collapse of the Federal government’s budget. Recognizing the fact the 2017 Republican tax bill largely benefited the wealthiest investors and businesses with the relatively minor sweeteners of the tax overhaul enjoyed by average income Americans set to expire in 2026, the findings make sense. Despite the polarizing nature of US politics and the ideological motives of US political leaders, Americans tend to be more pragmatic than ideological. Cutting taxes on the wealthy has not helped alleviate America’s fiscal issues nor decisively helped the economy in terms of creating well-paying, working class jobs. Consequently, the only logical conclusion is that the wealthy should and need to pay more in taxes, but the real question is how such a policy should be implemented.
Controversial political newcomer and self-styled democratic socialistic Congresswoman Alexandria Ocasio-Cortez wants to increase the marginal tax rate from 43.4% to 70% for those who earn more than $10 million per year. Senator Elizabeth Warren wants to impose a 2% tax on all households earning more than $50 million. Senator and former-Presidential candidate Bernie Sanders wants to increase taxes on the estates of the rich. Although these plans are popular and history favors them, their reliance on taxing personal incomes and assets makes them less than ideal for a number of reasons. There are, for example, only about 14,000 households, i.e. the top 0.01%, that earn more than $12 million per year. Even if the entirety of their incomes were taxed at a rate of 70%, the US government would only collect about $118 billion. Compared to a $4 trillion budget, taxation of their personal incomes would do very little to alleviate America’s fiscal crisis.
More importantly, taxing the personal incomes of wealthy Americans would simply help support government spending. The US government both spends too much and taxes too little. Addressing one side of the equation only helps the other side appear more balanced. Taxing the rich at a higher rate would also inflame between tensions socioeconomic classes and fuel a class war. US political leaders are already trying to divide Americans along party and political ideology. Intentionally dividing US citizens along socioeconomic class will only create new issues. The simple truth is that Americans tend not to like taxes, because they believe people should keep what they earn and they envision themselves earning multi-million dollar salaries at some point in their lives. Support for higher taxes on the rich stems from a desire to balance the fairness of the tax code and find a pragmatic solution, so support for increased taxes on the incomes of the rich can easily be transferred to alternative policy solutions.
Raising taxes on the wealthiest of Americans is easy, but it might not be the wisest or most effective solution to America’s economic issues. It does nothing to address the mechanics of these issues. Quite frankly, taxing the personal incomes of the rich more does nothing to address the root causes of issues like income inequality. It funnels more money into government and decreases the incomes of the wealthy, yet it does nothing to increase the incomes of the poor and average-income Americans. Lower business taxes benefit the wealthy corporation the most and help fund larger returns for investments. A lower capital gains tax rate encourages investment in high-yield investments. These policies, however, offer very little benefits to average income Americans in terms of job creation and wage growth. If these policies happen to help a business grow, American workers might see an incidental benefit, yet the benefit is minuscule in the scope of things. As such, these policies should be targeted.
Absent a progressive tax code, which evenly distributes the burden, versus cost, of government, the tax code would place an enormous burden on those who cannot afford it, which hinders their ability to improve their economic standing and later take on more of the burden, while easing the burden of those who can afford it better, which allows them an greater competitive economic advantage. The same is true for individuals as well as businesses. Instead of taxing the personal incomes of the wealthy, capital gains and business revenue should be taxed at the same tax rates as personal income. The business tax code should be made more progressive in order to deliver more benefits to the smaller, lower-income businesses that create the majority of jobs in America. Like American workers, small businesses also suffer from income inequality and wealth inequality. Delivering more tax benefits to these businesses will help them survive and thrive in regions and community where their local economies deprive them of the revenue they need to compete with bigger businesses that operate on a national and international level.
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