Guest Post: Should The Rich Pay More Taxes?

Tyler Durden's picture

Submitted by Azizonomics

Should The Rich Pay More Taxes?

It’s a multi-dimensional question.

The left says yes — income inequality has soared in recent years, and the way to address it (supposedly) is to tax the rich and capital gains at a higher rate. The right says no — that the rich already create more jobs and wealth, because they spend more money, and why (supposedly) should they pay more tax when they already pay far higher figures than lower-income workers?

Paul Krugman made the point yesterday that the tax rate on the top earners during the post-war boom was 91%, seeming to infer that a return to such rates would be good for the economy.

Yet if we want to raise more revenue, historically it doesn’t really seem to matter what the top tax rate is:

Federal revenues have hovered close to 20% of GDP whatever the tax rate on the richest few.

This seems to be because of what is known as the Laffer-Khaldun effect: the higher rates go, the more incentive for tax avoidance and tax evasion.

And while income inequality has risen in recent years, the top-earners share of tax revenue has risen in step:

So the richest 1% are already contributing around 40% of the tax revenue, taxed on their 34% share of the national income. And even if the Treasury collected every cent the top 1% earned, America would still be running huge deficits.

Yet the Occupy movement are still angry. A large majority of Americans believe the richest should pay more tax. More and more wealthy Americans — starting with Warren Buffett, and most recently Stephen King are demanding to pay more taxes.

King writes:

At a rally in Florida (to support collective bargaining and to express the socialist view that firing teachers with experience was sort of a bad idea), I pointed out that I was paying taxes of roughly 28 percent on my income. My question was, “How come I’m not paying 50?”

How come? Well, the data shows pretty clearly that it’s unlikely that revenues would increase.

They may have a fair point that capital gains above a certain threshold should probably be taxed at the same rate as income, because it is effectively the same thing. And why should government policy encourage investment above labour by taxing one more leniently?

But more simply, people like King think the status quo  is unjust far beyond the taxation structure. A lot of people are unemployed:

A lot of people are earning less than they were five years ago:

28% of homeowners are underwater on their mortgages. Millions of graduates face a mountain of student debt, while stuck in dole queues or in a dead end job like Starbucks.

We live in dark times.

From Reuters:

Nearly 15 percent of people worldwide believe the world will end during their lifetime and 10 percent think the Mayan calendar could signify it will happen in 2012, according to a new poll.

With all this hurt, there’s a lot of anger in society. Those calling for taxing the richest more are not doing the same cost-benefit analysis I am doing that suggests that raising taxes won’t raise more revenue.

But they’re not unfairly looking for a scapegoat, either. While probably the greatest culprits for the problems of recent are in government (Bush, Greenspan, Obama, Bernanke) Americans are right to be mad at the rich.


This isn’t about tax. This is about jobs, and growth.

The rich, above and beyond any other group have the ability to ameliorate the economic malaise by spending and creating jobs, creating new products and new wealth. The top 1% control 42% of all financial wealth. But that money isn’t moving very much at all— the velocity of money is at historic lows. It should not be surprising that growth remains depressed and unemployment remains stubbornly high.

And every month that unemployment remains elevated is another month that the job creators are not doing their job. Every month that the malaise festers, the angrier the 99% gets.  It is, I think, in the best interests of the rich to try and create as many jobs and as much wealth as they can. Class warfare is ugly. A divided and angry society, I think, will find it even more difficult to grow and produce.

So raising tax rates is not guaranteed to raise revenues, and cannot address the problem of deficits. America needs the richest Americans to pay more tax dollars — but only as a side-effect of producing more, and creating growth. 

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Temporalist's picture

The rich will just take bigger writeoffs like Yelp.  What a winner...for being such a loser.

Whiner's picture

Thanks have proved that USA is bankrupt. To come out of the hole Obummer will leave us in, we will have to confiscate 50% of all net worth of each citizen. Problem: can't and won't happen. Wait on hyper inflation. Pay off in one day, all wealth vaporized. Start over with real money backed by PMs. Population will drop by 30%. Take the rest of the wealth to bury the dead and rebuild essential infrastructure and fund military government

smiler03's picture

 "Nearly 15 percent of people worldwide believe the world will end during their lifetime and 10 percent think the Mayan calendar could signify it will happen in 2012, according to a new poll."

The weak minded devout christians agree completely.

GernB's picture

Sounds more like the flaky new age progressives to me.

NewAmericaNow's picture

When taking from Paul to give to Peter, you will always have the support of Peter.

Buckaroo Banzai's picture

Arguing about who among us should pay the most income tax, and how we should calculate it, is like a bunch of slaves crying over who gets the heaviest chains.

YOU ARE ALL FUCKING SLAVES as long as there is an income tax on productive natural persons. The only ones who aren't slaves are the ones who produce nothing.

How perverted is that? Think about the kind of incentives a system like this engenders. And people have the nerve to wonder why the economy is falling apart.

crawldaddy's picture

bullshit, the .01% control and run the govt, they are the puppet masters. The ultra rich like always, ARE the problem.

alangreedspank's picture

Yes, "control" our desperate to do good policitians. *Sigh*

A Nanny Moose's picture

A bunch of people with capital, control a bunch of people with all the guns...

Yes, that must be it.


Umh's picture

Or maybe it's the other way around. The people with guns & laws control who has the capital.

Buckaroo Banzai's picture

So on the one hand you say that the rich have all the power, and on the other hand, you say that we need to tax the rich?

Don't be an ass. If they have the power, do you really think they would allow this to be implemented in any kind of practical way?

On the other hand, did you stop to consider that this "tax the rich" meme might be the kind of strategy they'd employ to (a) confuse people like you and (b) use as a tool to strip the middle class of their wealth. Because it's the middle class that represents the real threat to these people.

Like a 10-year-old at a magic show, you are listening to what they say, and always looking at the wrong hand, and not paying attention to what they are actually doing.

Clampit's picture

Too bad Peter doens't realize he's using Paul's currency. Take all you want, we'll print more.

And from the article:

The rich, above and beyond any other group have the ability to ameliorate the economic malaise by spending and creating jobs, creating new products and new wealth.

Yeah, dreaming up diamond encrusted, wifi enabled automatic tonail clippers isn't exactly my idea of job satisifaction.

IBelieveInMagic's picture

$600 million tax free Hank Paulson, $200 million Stan O'Neill, etc. is fully earned and deserved. Anybody who does not agree is an envious git.

vast-dom's picture

Stop taxation, end the fed and the economy will stabilize and become productive again. 

Do a real cost benefit and you shall see how increased disposable income vs. taxation will actually benefit the economy. the gov can print money and sell bonds to maintain the bare min to run itself, which means it would have to do more basic honest regulating and almost no meddling in business ie markets. That won't happen though unless there is huge revolt...

StychoKiller's picture

"Congress shall make no Law abridging the freedom of production and trade." -- "Atlas Shrugged"

kubrick007's picture

Another BS story about taxes.


Most of the "rich" (assume $1 million per year income) are incorporated via LLC, S(Corp), etc. When you raise the tax rate on their net income, all you do is encourage them to spend more money into their business via hiring people, buying capital equipment... as this ends up in the expense column and reduces their net income.


For ex, imagine business owner with following:


Revenue $2 million

Costs $1 million

Net income = $1 million


At a tax rate of 30%, this owner has $700k post-tax for personal expenses to invest in stocks, bonds, currency, art, real estate, money market, etc. This owner prefers to be taxed and keep his cash for stocks etc.


At a tax rate of 60%, this owner has only $400k post-tax for personal expenses to invest in stocks, bonds, currency, art, real estate, money market, etc (not quite as much left over). This owner will prefer to invest more into his business as he will be taxed at such a high-rate that it will be difficult to make up the tax loss.



Higher tax rates cause business owners to try to decrease their net income and thereby it actually results in increased jobs

Itinerant's picture


This article again concentrates on income tax. But total tax revenues (including municipal and states) shows that the tax burden is far more evenly distributed than partial comparisons suggest.

Arguing about how much revenue extra taxation on the rich would generate is besides the point. This article again speaks of investment and rich people "spending money", but no distinction is made between investing in production of goods and services and investment in debt multiplication (bidding up the price of assets, gaming the system for rentier income extraction). Taxes are not just about revenue from rich people, they are about incentives and relative price (encourage/discourage), and therefore about the structure of the economy.

It's absolutely crazy to think that there is a lot of unemployment and poverty (and thus higher taxes and support programs) because there is a dearth of rich people spending enough money to create jobs. Do people seriously think national income and wealth would go down if those rich people went on vacation to the South Pole, abandoning their assets, forcing us to do something else with them ???

StychoKiller's picture

"But you say that money is made by the strong at the expense of the weak?  What strength do you mean?  It is not the strength of guns or muscles.  Wealth is the product of man's capacity to think.  Then is money made by the man who invents a motor at the expense of those who did not invent it?  Is money made by the intelligent at the expense of the fools?  By the able at the expense of the incompetent?  By the ambitious at the expense of the lazy?  Money is made--before it can be looted or mooched--made by the effort of every honest man, each to the extent of his ability.  An honest man is one who knows that he can't consume more than he has produced."

-- Francisco d'Anconia, "Atlas Shrugged"

midtowng's picture

The rich are creating jobs all right - OVERSEAS!

What's more, the rich are paying a lower effective tax rate than middle income people. How can that possibly be fair?

CommonSense89's picture

Please provide proof that the top 1% or 5% pays a lower effective federal tax rate than any other group. Every study I've seen shows a nearly perfect correlation between share of national wealth and corresponding effective federal tax rate

Stuck on Zero's picture

So true.  And I love this statement:

"The rich, above and beyond any other group have the ability to ameliorate the economic malaise by spending and creating jobs, creating new products and new wealth."

Horse poopies.  The rich never, ever risk their own money.  The rich protect their money and use other people's money.  I've worked with dozens of very rich "investors" and none of them ever used their own money in any way, shape, or form.  They would always use their "name", take a big cut, and bring in other investors of lesser means.  May I name a few names, like Donald Trump.  He's rich and all the suckers he got to invest in his vast enterprises took baths.  No.  The rich don't create jobs.  They wheel and deal.  The hard working enterprise class does the investing.  I guess you'd call them the top 10%.

Payne's picture

Disband the Federal Government !  Imagine all the jobs that will be created without a bloated bureaucracy.

Marco's picture

The rich have no more ability to make oil appear out of nowhere than the poor ... so no, they can't create growth.

AnAnonymous's picture

Ummmm, how rude.

As an expansionist, I shall discard any fact, point that confirms that expansion can not be maintained and has entered stagnation stage.

I want to expand, and as such, I'll only endorse stories that tells me expansion is kicking.

Signed:a polite US citizen, who dismisses reality as rude, as any US citizen does.

NidStyles's picture

WTF does Oil have to do with economic growth?


I know you'll probably throw that Peak-Oil and look at the fuel prices line at me, so I will just head you off at the pass. The price for Gasoline is being directly effected by the quantity of currency in circulation. To put it simply so any idiot can understand it, the Government, along with the Federal Reserve is the reason the oil and fuel prices are so high.

The_Nihilist's picture

Funny how people down vote you for speaking truth. The money printing by all central banks of the world is because of peak oil. Some how they believe if they print enough money more oil will magically appear. Remember a barrel of oil was $25 in 2002, in 2008 it was $140 almost 6 times as much in just 6 years. There was no massive money printing then either. The DOD is predicting a 10 mbpd shortfall in global supply by 2015 which you can read here Many people talk shit on Hubbert yet he accurately predicted the peak of US oil production back in the 70s yet people still don't believe him 40 years on. Keep your rose colored glasses on as long as you can cause in a decade it will cost more to drive to and from work than you will make at that job. Peak oil doesn't care if you believe in him or not, he believes in you.

LawsofPhysics's picture

"This isn’t about tax. This is about jobs, and growth."


Correct, and real growth is not possible in the absence of an increase in the input and flux of all resources (not simply oil) through the system.  Hedge accordingly.

pods's picture

I love these silly arguments about taxes.  Sure, taxes suck.  We got that.
But taxes are funding less and less of the  And certainly are not going to fund our liabilities.

Chicanery and money printing runs our government.

Taxes are merely to keep us fighting each other instead of actually thinking about how far our servant government has overstepped it's delineated boundaries.


AnAnonymous's picture

Taxes are merely to keep us fighting each other instead of actually thinking about how far our servant government has overstepped it's delineated boundaries.


Correct, correct. It reminds of that hockey player's comments on how he figured out that the government has grown big enough to steal etc... this living in the US of A which knows nothing about theft and land grabbing.

US citizenism has not changed one bit since its inception.

A Nanny Moose's picture

Government....our servant. Bwahahaha!!! That's rich

pods's picture

Well in practice it is not that way, but if you look at the document that founded our government:

"We the people of the united states....."

We the people are where the government came from.  We delegated some of our power to the collective government.  
Just because it is not that way now does not mean we should merely embrace this. We must let them know at every turn that they are OUR servants, and that we the people will do whatever it takes to cram our servant government back into the funtions, and only the functions that we have delegated to it.


smiler03's picture

 "We The People....."

Actually spouted by very few.

Who was the Senate composed of? Who elected them? 

The whole Constitution of the US had about as much mandate as Gordon Brown of the UK had to "Obama" the UK economy.

It's all bollocks that 50% of you want to break from and 50% of you want to keep because you believe that it is a God given right to let you own lots of guns.

Ha ha, that should get more downvotes than anne ananonymous us citizenism bloke.

sgt_doom's picture

Ya know, this morning I heard two ultra-airhead females (if they were guys I would refer to them as vagina girls, but these two idiots weren't intellectually capable of locating their own vaginas) on some moronic NPR show (The Takeaway, and I wish they were gone) discussing this.

The hedge fund airhead stated:

"Profits, as a percentage of the GDP, are at an all-time high."

"While wages, as a percentage of the GDP, are an an all-time low."

Duuuuuuh.....those profits, though, are based upon the packaging, and endless repackaging, of debt:  the fantasy finance sector.

Also, profits are at an all-time high precisely because wages are at an all-time low --- due to decades of labor arbitrage (offshoring of jobs, importing of foreign scab workers) resulting in labor deflation.

Evidently neither of those two airheads, like Paul Krugman, can't do arithmetic ---- it's just toooooo haarrrrd for them....

smiler03's picture

It begs the question... "why the heck were you listening to it?".

Their "most commented on" article is this.... see if you can spot a female link here.....

""Girls," written by and starring Lena Dunham, was initially the subject of overwhelming praise for telling the story of twenty-something New York females in a new way. Media outlets scrambled to nail down a Dunham interview. And we were lucky to be one of the shows to talk with her."

I think I should refer to you as a penis boy, or perhaps sergeant dickhead would be more appropriate.

StychoKiller's picture

The edges of the Petri dish are hard and cold!  Conclusion:  The surface of a planet is NOT the correct place for an expanding, technological civilization.

Time to leave the cradle.

lolmao500's picture

It's not about taxes, it's about spending.

Anyway, the rich need their money to build bunkers...

Russia warns on missile defence deal with Nato and US

Russia says it is prepared to use "destructive force pre-emptively" if the US goes ahead with controversial plans for a missile defence system based in Central Europe.

The warning came after the Russian defence minister said talks on missile defence were nearing a dead end.

Moscow fears that missile interceptors would be a threat to Russia's security.

But the US and Nato say they are intended to protect against attacks from Iran or North Korea.

"A decision to use destructive force pre-emptively will be taken if the situation worsens," chief of the Russian defence staff Gen Nikolai Makarov said.

Bartanist's picture

... and it was recently published that an old "off inventory" nuclear weapon left Germany by submarine for an undisclosed destination. Maybe Chicago for the NATO summit false flag? Maybe to the Persian Gulf to stage a false flag? Maybe to be used to create another tsunami off Japan (9.0 my furry butt)?

AnAnonymous's picture

Anyway, the rich need their money to build bunkers...


They cant buy discount price one of those fallout shelters built by US of A us citizen middle class?

nmewn's picture

They're all made in China now  by chinese citizen citizenism cynism as dictated from on high by the lap dog lackey politburo citizenship...we here call them coffins.

Real bunkers are made by Americans for Americans.

El Viejo's picture

Its not about revenge or blame or anything other than getting taxes from the place that would have the least negative effect on the economy and giving tax breaks to those who would actually consume.

And puhleeze don't give me that crap about the rich creating jobs. They put their money into hedge funds cause that's a lot easier.

Woodyg's picture

Tax the Hell out of the rich
1. just watch Housewives of Beverely Hills etc for a reason to tax the rich......
2. Most jobs are created by small businesses where the owners make less than a million a year
3. They'll have less money to buy off politicians
4. The ultra wealthy use their money to buyout, Consolidate, layoff American workers, outsource and hide their wealth.....
5. The rich don't want to get their hands dirty doing Actual work - financialization is their game - which does NOTHING but decrease true economic output
6. An economic system that gives basically ALL of the gains from growth to one very small segment of society is By Definition Flawed and Corrupt.
7. The rich gamed the economic system by buying off politicians....

Tax the rich or face violent revolution.......

For the last 30 years the rich have taken All the gains from growth.....
Imagine the whining and crying they'd engage in If the tables were turned and the bottom 90% received all the gains from growth.

The rich are weak and pathetic and couldnt make it if Real Work was required or they couldn't buy off and bribe the kletocratic politicians....

Eat the Rich!

Or tax the rich - it's their choice but soon it will be ne or the other......

Not a great system to create Actual wealth

mayhem_korner's picture

The rich gamed the economic system by buying off politicians....


I love it when folks who make less than I pay in taxes come out with the bumper-sticker tag lines.  When you all realize that not everyone "wealthy" cheated to get there, then maybe a normal conversation can ensue...

AnAnonymous's picture

Yep, some are free riders. They let the others do the job and benefit from it. Flock style effect.

Keeping hands clean...

TheFourthStooge-ing's picture

AnAnonymous said:

Yep, some are free riders. They let the others do the job and benefit from it. Flock style effect.

In Chinese citizenism land of face savery, it is called Fox Conn effect.

Keeping hands clean...

Ah, ah, Chinese citizenism citizen keeping hands clean by not wiping after roadside crap making.

As for cleanliness of other than hands...


Woodyg's picture

Funny you bitch about bumper sticker tag lines then Add one of your own.....

Besides I mentioned multiple reasons.....

Bite me!

If you don't think the rich have ought off the politicians thru bribes you're an idiot

mayhem_korner's picture

If you don't think the rich have ought off the politicians thru bribes you're an idiot


Not all of them.  See the difference is you're guessing, I'm not.