Wednesday, March 24, 2021

The Insane Futility of Taxing the Rich

President Joe Biden has declared emphatically he will get a massive tax hike through Congress, and he will sign it. 

Knock yourself out, Mr. President. Raising tax rates has never paid for all the new spending anyone has gotten through Congress. Tax revenue flowing to Washington has held remarkably steady at around 18.5% of GDP following multiple tax hikes, cuts and reforms every year since 1970. 

Tax revenues will be around 18.5% after President Biden and his band of merry, liberal, socialist Democrats pass their tax plan. The problem is everyone, including a lot of Republicans, keep proposing more spending we can’t pay for with current revenue. Spending has held remarkably steady as well at 21% of GDP since 1970. America has borrowed an average of 3% of GDP each year since, which is why we now have $28 trillion in national debt instead of $0. 

In early March, the CBO estimated U.S. deficits over the next 10 years will be $12 trillion before any new spending is enacted, including the recent $1.9 trillion COVID bill.  

President Biden’s “soak the rich” tax plan that CBO guesstimates will raise $3 trillion is a veritable spit in the bucket when it comes to paying our bills. $3 trillion in new taxes over a decade averages $300 billion annually. After liberal, socialist Democrats celebrate “making the rich pay their fair share!”, whatever that is at any moment in time, there will still be close to $1 trillion — $900 billion — in annual budget deficits left to cover. 

Then what? Then taxes will trickle down to upper-income and then middle-income taxpayers through bracket creep and inflation. There is no way Biden’s tax plan will not eventually hit millions of taxpayers below $400,000 as he promised. 

Higher tax rates almost never raise the amount of tax revenue the CBO estimates. The CBO uses a static forecasting method which ignores any behavioral changes, such as rich people hiring more tax accountants and lawyers to protect their income and assets from higher taxes or moving their wealth offshore. 

Economic conditions and investor confidence determine tax revenue to Washington much more than US tax law. President Herbert Hoover proposed massive tax increases on the rich to reduce massive budget deficits caused by the Great Depression in 1930. Less than 10% of the revenue forecasted ever materialized.  

Government is the most inefficient means possible to get money to the poor. A 2007 study by James Rolph Edwards, “The Costs of Public Income Distribution and Private Charity,” revealed that two-thirds of marginal tax revenue raised goes to support middle-income bureaucrats and overhead costs. One-third gets to the poor people for whom the bill was intended. The reverse is true in private charitable organizations where even the most inefficient charity spends only 33% on manpower and overhead costs to deliver the same assistance to the same poor person. 

The poor would be much better off if President Biden could somehow order billionaires to pay $300 billion per year directly to people on poverty without the government middleman taking its massive vig that any casino would admire. $10,000 would go directly to each poor person; man, woman and child. A poor family of four would receive $40,000 on top of benefits they currently receive each and every year. 

Here’s the show-stopping question no socialist Democrat wants to hear or try to answer: “If raising taxes and spending trillions of dollars was going to solve all of our poverty problems, wouldn’t poverty in America have been abolished by now?” 

American taxpayers have spent $28 trillion (in 2016 dollars) since 1970 to defeat poverty — 3.5 times more than America has spent on all wars combined since the Revolution. U.S. poverty rates have fluctuated between 11% and 15% since 1970, with 2019 being the lowest in recent memory at 11.7%, primarily due to the expansion of jobs under President Trump. 

Taxing the rich doesn’t work. It just helps liberal, socialist Democrats feel better without making any real difference. They will never confiscate all rich people’s wealth to pay for all their utopian wish lists, so they should stop trying. 

(first published in North State Journal 3/24/21)

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