The Top 1%

I'd like to expand on George's post about the 95% fallacy with respect to Obama's tax plan. Currently, the top 1% of Americans pay 40% of the taxes in this country. The top 50% in this country pay 97% of the taxes.

Yet that's not enough for Senator Obama and the Democrats who want to make the rich pay their fair share. (I'm not even going to get into the concept of "fair share" in this post or I'll be at it for hours.)

But when taxes grow so onerous, what will the rich do? And we're talking about the super rich, the 1% of the 1%, not the working rich making $250,000 a year. And $250,000 a year, depending on where you live isn't rich. If you live in California or New York, you're not rich on $250,000 a year. The state taxes are at 9.3% for California (10% if you're a millionaire) while state and local taxes for New York are 11.7%.

Factor those two figures into the new Obama bracket (or old President Clinton bracket) of 39.6% and you've paid half of your income to the state and federal government.

So what do you do if you're the super rich?

The super rich can move someplace else where taxes are lower. Hopefully, they'll just move to a state that has no state income tax. Ever wonder why athletes live in Florida? No state income tax. But they could also move themselves, and/or their business to a more tax friendly country.

But the working rich can't move. What happens to them? They get stuck with the bill.

If you shrink the tax base, no matter how high you make the top tax bracket, you will eventually see declining revenue. But if you encourage the growth of wealth, you expand the tax base and everybody moves up a bracket and pays more in income taxes. It seems to me that the problem with Senator Obama's tax plan is that it assumes wealth is static and the pie is finite. But that's not the case. Wealth can be created. Just ask Bill Gates.

The majority of millionaires did not inherit their wealth. They created it. And I can think of no better way to discourage growth than to impose onerous taxes on individuals. (I'll save my corporation tax talk for another post.) Yes, the rich should pay more than poor people in taxes, but they shouldn't be punished for being successful.