A recent analysis from the left-of-center Tax Policy Center reports that the top 1 percent of income earners will pay nearly 36 percent of their income in federal taxes in 2013. That is their highest effective tax rate since the Congressional Budget Office (CBO) started tracking such data in 1979.
What drives this record "take" from the rich are several tax increases from Obamacare, which kicked in Jan. 1, as well as the recent fiscal cliff deal. The net effect on top earners: higher tax rates on income, capital gains and dividends earnings and reduced deductions and personal exemptions. These provisions kick in at varying income levels - starting with families earning $250,000-a-year.
With all this tax-hiking, President Obama has not just achieved but actually far surpassed the stated goal of his "Buffett Rule." That proposal, named after famed investor and vocal supporter of liberal policies Warren Buffett, called for a "mere" 30 percent effective tax rate on the rich.
The Buffett Rule was supposed to be about making the rich pay their "fair share." And yet even with the rich paying a larger share than what the Buffett Rule called for, President Obama still wants more tax increases on the rich.
This begs the question: How much would the government have to extract from the rich for the president to regard it as an unfairly large amount?
My hunch is he won't provide an answer. He'll just say that the rich should pay more than they currently do. That's the beauty, from his point of view, of arguing the rich should pay their "fair share." It has no objective meaning, so it can always stand for more.
Of course he doesn't want higher taxes just for some vague sense of fairness. He also wants the money to spend to grow the size of government. Or as he more often puts it, for more government "investment."
The vision of government spending creating jobs and helping those in need can be seductive, but its ultimately fool's gold.
It is an illusion because before government can spend a dollar, it must first take that dollar out of the economy. To understand the full effect of government spending, its direct benefits must be weighed against the economic cost of the foregone activity from the private sector.
If we do as President Obama wants and raise taxes on the rich even higher, we will reduce their incentives to invest and take risk when promising new opportunities are available. It is that investment and risk taking, largely absent from the economy today, that creates jobs.
The rich, after all, are the investors that help businesses grow and add jobs. Often, they are business owners themselves, eager to hire workers when demand grows.
For every job the government creates with the money it taxes from the rich, the best that can be hoped for is it destroys only one job in the private sector. In reality, it most likely destroys more than one.
Tax hikes on the rich end up hurting the middle class and the low-income families everyone wants to help because, by reducing job creation, they suppress opportunities for these families to rise up the income scales on account of their hard work and ability.
The parents from a middle-income family won't have the chance to land that great new job that will allow them to afford a better home and better schools for their children.
Young people entering the job market with little work experience won't get that first job they need to help them acquire the skills necessary to climb the career ladder.
Tax hikes on the rich also reduce the chances of a budding entrepreneur getting the seed money he needs, or deciding to take the risk, to launch the "next big thing." Such ubiquitous products create new jobs, enhance our lives, and make us all richer.These are the reasons why higher taxes on the rich are the wrong policy. It is not to help rich guys like Warren Buffett and Bill Gates, or patriotic millionaires like Ron Garret and Eric Schoenberg. There is a way for millionaires that feel obliged to pay more in taxes to do so without creating these pernicious unintended consequences, however. They can donate directly to the U.S. Treasury any time, day or night.
It is the best of both worlds. They can put their money where their mouths are without creating economy-wide damage that would hurt those they profess to help.
Curtis Dubay is senior tax policy analyst at The Heritage Foundation (heritage.org). Follow him on Twitter at @CurtisDubay.
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------------------------------------------------------------For an opposing view on tax rates and wealth creation, please see the March 4 Politix op-ed by Ron Garret, "Higher Taxes On The Wealthy Mean More Prosperity For Everyone".