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Saturday, October 1, 2011

In the United States, are the rich paying enough taxes?

My answer on @Quora to: In the United States, are the rich paying enough taxes?

Yes, the rich are paying enough taxes.

There are many on here who talk about all of the great loopholes that the rich supposedly take to avoid tax. However, most of the great tax shelters have been shut down, and there are severe penalties (look at what happened to all the Swiss bank accounts.....look at the 2011 Offshore Voluntary Disclosure Initiative).

There is no such theory as "trickle down." If you Google trickle down, you get this:

"Economist Thomas Sowell has written that the actual path of money in a private enterprise economy is quite the opposite of that claimed by people who refer to the trickle-down theory. He noted that money invested in new business ventures is first paid out to employees, suppliers, and contractors. Only some time later, if the business is profitable, does money return to the business owners—but in the absence of a profit motive, which is reduced in the aggregate by a raise in marginal tax rates in the upper tiers, this activity does not occur. Sowell further has made the case that no economist has ever advocated a "trickle-down" theory of economics, which is rather a misnomer attributed to certain economic ideas by political critics."

Trust me, it is not much fun to run a business, pay all the bills and employees, and then have nothing left over to pay yourself, or worse to have to lend money to the business to make payroll. Happens all the time with businesses.

This is a competitive world. If we tax people disproportionately higher than in other countries, people will leave. We are already starting to see this in the US...

Warren Buffett is disingenuous with much of what he is saying. For example, when he talks about paying less than his secretary, he is failing to take into account the corporate taxes he pays. When you combine the corporate taxes with the individual taxes, the US pays one of the highest rates in the world. If we didn't, then why all the effort to shut down tax shelters? Why are so many companies holding their profits offshore? Moreover, Warren Buffett had already made his money, and he likes to hold his positions for a very long time. As such, he really doesn't have much income anyway.

WIth our current rate of spending, you would have to tax people who make over 10 million dollars a year at a 700% tax rate to close the budget gap. Massive increases in tax anyway were one of the causes of the great depression (the Revenue Act of 1932 was one of the largest tax increases in history and made the Great Depression much worse).

As for borrowing our way to prosperity, Japan tried this for a couple decades, and has a lot of debt and not much growth to show for it (Google the "lost decades").

As for solutions, we need to strongly encourage economic growth through attractive tax and regulatory policies and sensible government spending. We need to make sure that investment is still flowing to the US.

- Posted using BlogPress from my iPad


  1. This comment has been removed by the author.

  2. Great Post! I just found your blog through your Linked in link and I look forward to reading more.

  3. The problem with these ideas is that they are driven by assumptions about what the tax code will be like in the future.