There was a time when millionaires were revered in this country. Becoming a millionaire was a financial goal of many, and those who reached this elusive pinnacle were evidence that the American Dream was alive and well.
Today, the “rich” are seen as the source of all our economic woes. President Obama has fanned the flame of class warfare with his “tax the rich” mantra, and now we have a wild fire called Occupy Wall Street spreading across America.
Not to be outdone, Senator Reid (D-NV) now gives us the Millionaire Tax. Let’s take a look at exactly what the Senator from the gaming capital of the world is proposing.
The Millionaire Tax
This new tax has been added to the American Jobs Act proposed by the Obama administration. While there are several pieces to the proposal, basically it seeks to encourage hiring by offering a bevy of tax cuts and credits to businesses at a cost of $447 billion. This reduced revenue raises an important question–how will Washington pay for all of these cuts?
Enter the millionaire tax. Proposed by Senator Reid, this new tax would add a 5.6 percent tax on income above $1 million. The democrats proposing this tax know that it won’t pass. The purpose of the proposal isn’t to achieve an actual solution to any of our problems, but is pure political strategy. Senator Schumer unabashedly explains:
“Republicans will be hard pressed to explain why they allowed teachers and firefighters to be laid off, rather than have millionaires and billionaires pay their fair share,” said Sen. Chuck Schumer, D-N.Y. “Republicans will struggle to defend putting off repairs to crumbling schools in order to protect tax breaks for the wealthiest 1 percent of America. This is the contrast that will be on display in the Senate next week.”
That sounds convincing. Tax the rich or we’ll be forced to lay off teachers and firefighters. As popular as it sounds, I believe the millionaire tax is a big mistake. Here’s why–
Millionaires should pay their fair share. I think we all agree with that. In fact, everybody should pay their fair share. The more you make, the more you should pay, and that’s exactly how our tax code works.
The problem is in that pesky word, “fair.” Millionaires pay 35% in federal income tax at the margin. They pay another couple percent in medicare and social security tax. Depending on where they live, they likely pay about 5% or more in state income tax. And like the rest of us, they pay sales tax, real estate tax, and personal property tax in some states. For capital gains, they pay 15%, as do most of the rest of us.
When you add it all up, the rich currently pay almost half of their earned income in taxes. To put that into perspective–
The top 1% pay more income tax than the bottom 95% (source: NY Times & IRS)
While some tax increases may be an appropriate component to a comprehensive solution to our fiscal problems, a good argument can be made that the “rich” already pay their fair share.
Taxing the rich will not even come close to solving our fiscal problems. To put it into perspective, imagine you wanted to fill a hole with dirt. So you load up a dump truck with topsoil, drive it to the hole, and throw the dirt into hole. Now imagine the hole you are trying to fill is the Grand Canyon.
Last year, the Tax Policy Center did a study to determine just how high tax rates would have to go to reduce the deficit to 2% of GDP over the 2015 to 2019 period. If we just increased taxes on the rich, the top rate would go to more than 56%. And keep in mind we’d still have a deficit each year.
The point: The rich can’t save us from Washington’s spending spree.
As I’ve often said, Washington spends money like a drunken sailor on a 3-day liberty. That being said, I disagree with Republicans who staunchly refuse to even discuss tax increases. However, I do believe that Washington should not take another nickel out of the pockets of any American until it can demonstrate its ability to handle our money responsibly. And Washington can do that by passing a comprehensive solution to our deficit, debt, and unemployment problems.
The call for the millionaire tax reminds me of a person on the verge of bankruptcy who thinks the solution is more credit. Why should the likes of Senators Reid and Schumer get one more dime of our money until they can prove to us that they’ll use the money responsibly?
And the sad irony is that the millionaire tax would not be used responsibly.
American Jobs Act and the Millionaire Tax
So let’s say we take an additional 5.6% out of the pockets of all millionaires. This money will go to tackle or deficit, right? Nope. Well certainly some of it will, right? Nope. Not even a penny will go to our deficit? Not even a penny.
Instead, it would all go to fund the American Jobs Act. Just like Obamacare, we raise taxes substantially to fund yet another social program we can’t afford. The irony is that Washington would raises taxes and prove yet again that they can’t handle our money responsibly. And that’s why I call it the Millionaire Tax to Nowhere. It doesn’t get us one step closer to a viable solution.
What about firefighters and teachers?
Schumer’s quips about firefighters and teachers is exactly the kind of nonsensical rhetoric we don’t need. It’s built on a false premise. It’s as if all these firefighters and teachers will be fired tomorrow if we don’t add 5.6% to every millionaire’s tax bill. That’s simply not true, and he knows it.
What we need is leadership. We need a president and congress who can reform our ridiculous tax code, cut spending, and put us on a sustainable economic path going forward. If we had that, we would immediately have confidence in our future that I believe would stimulate economic activity. We don’t need Washington to “help” us. Americans are great at working hard and helping ourselves. We just need Washington to stop doing stupid things with our money and stay out of our way.
What we need is to Occupy Capital Hill, not Wall Street.
So what do you say? Is the millionaire tax a good or bad idea?
(Photo Credit: eyewash