Increasing social mobility means that increasing taxes on the rich affects both rich and poor alike

Catherine Baum disects the whole antipathy of tax cuts for the wealthy.  Apparently many on the left see the left as a group of folks which were born of privelige and always earn millions every year.  All we are doing is just asking these very wealthy people is just to sacrifice just a bit more. 

Anything could be further from the truth.  What they are taxing is people that make over 250K in one year.  I'm sure those guys have money to spare.  But, as it turns out, the high earners in one year are not the same people as they are in other years.  Allowing them to sock away just a little bit more during the good years is good social policy.  It potentially reduces the burden on the most costly social entititlements, i.e. security, medicare and medicaid. 

It also highlights one of the simple difficulties in social engineering:  as long as we are a democracy we simply fail to capture more than 18% of GDP, regardless of the tax rate.  We would do better by making the pie bigger than by increasing the tax rates and restricting growth.  Via Bloomberg:

Over the last 60 years, federal government receipts have averaged 18 percent of gross domestic product. Whether the top marginal income tax rate was 92 percent, as it was during the 1950s, or 28 percent, as it was for a short spell in the late 1980s, the government can’t manage to snag a bigger share of the pie.

Far better to find a recipe to bake a bigger pie so that government’s 18 percent translates to more dollars.

...Besides, the focus on increased income inequality, with its potential to create social unrest, ignores mobility up and down the income ladder. Almost 60 percent of taxpayers were in a different quintile in 2007 than they were in 1999, according to a June 2010 report by Robert Carroll, a senior fellow at Washington’s Tax Foundation. Forty percent of households in the top quintile moved down, while 60 percent of those in the bottom quintile moved up.

...Millionaires, as it turns out, are here today, gone tomorrow, largely the result of the variability of capital gains realizations, Carroll finds. Politicians should keep this in mind the next time they contemplate a surtax on the wealthy, the only group against which it’s politically correct to discriminate.


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