What do higher taxes for the rich mean?
By poingly
@poingly (605)
United States
January 21, 2010 4:34pm CST
I have often heard the argument that we cannot raise the taxes on the rich, because then this will mean that they will somehow lose their motivation to try and be rich. Perhaps someone can explain this argument, because I really don't understand it.
The argument as I understand it is that money is a motivation. However, given the way our progressive tax structure works coupled with the fact that income taxes never reach 100%, even when taxes are high more money made is STILL more money in one's pocket after taxes.
3 responses
@Charl23 (41)
• United States
21 Jan 10
The problem is when the rich have less free capital, they have less to invest with. That means they create fewer jobs and new businesses. They also buy fewer goods and that means manufacturers sell less, which leads to higher prices and fewer manufacturing jobs.
@poingly (605)
• United States
22 Jan 10
Does someone always benefit from investing? Sure, but that benefit is not always job or business creation. Let us take the recent action of the government pumping money into banks (essentially the government investing in these banks). This benefited the banks, I'm sure! However, the intention was that the banks were supposed to then lend more to folks for things like starting up new businesses. This didn't happen, or rather, it happened at a pitifully low level.
The stock market (which is an investment as well) is back above $10K, but the unemployment level is still at 10% (with underemployment being even higher).
I think investments SHOULD create jobs and businesses, but something seems to be broken.
@echomonster (2226)
• Greenwood, Mississippi
24 Jan 10
I don't think raising taxes on the rich changes the motivation of the rich to remain rich -- rather, it discourages poor and middle income people from trying to become rich because they know they'll get less of a benefit from taking risk via starting a business, investing, etc. If they can play it safe and still live a reasonably decent life, why take risk at all? You have to remember that businesses fail and investments lose money all the time. Some people get a step ahead by taking risk, but others end up back where they started or worse off.
Probably raising the marginal income tax rate a few percentage points at a time won't have all that big an effect on anyone's motivation. Even a bigger change might not because if it is raised too high it can encourage tax evasion and fraud to such a point that it really becomes just a number on paper, much like a speed limit on a road that isn't patrolled. In the United States, for instance, the marginal income tax on the top income bracket was nominally around 90% during FDR, Truman, and Eisenhower's presidencies...how many smart rich people do you think actually paid that?! In such extreme cases, it becomes a tax not on wealth but rather honesty; those who follow the law dutifully suffer while those who evade it are rewarded.
@poingly (605)
• United States
24 Jan 10
I think the 'honesty' argument is an interesting one...however, you could still make the same argument no matter what the tax rate is (though obviously the counter would be that people are likely to be more 'honest' when the tax rate is lower).
Psychologically speaking, as a nation, we aren't as money oriented as we used to be. It's just not the same motivation that it used to be--nowadays, people are more likely to start a business because they believe in it not because they believe it will make them wealth (though this might be true for those of older generations). That being said, people will always be motivated to start no matter what. Once again, this would seem to indicate tax breaks should be dolled out to the lower and middle class, so that they have more funds with which to take risks.
@washingtonmark (367)
• United States
22 Jan 10
I think the rich should be taxed a little more than the middle class. It is only fair to share.
