Soak the Rich?

[TakeAStepBack]

Soak the Rich?

From the Buffett Rule to France's 75 percent tax on the wealthy, "soaking the rich" is all the rage once again. Henry Hazlitt, writing his Business Tides column for Newseek, challenged this perennial impulse in the following three articles from the postwar era. Note Hazlitt's "Laffer curve" analysis, written when Arthur Laffer was in primary school. However, as Hazlitt makes plain, it was public welfare, and not government revenue, that he was really after in pushing for lowering taxes on the rich.

by Henry Hazlitt

Henry Hazlitt (1894–1993) was a well-known journalist who wrote on economic affairs for the New York Times, the Wall Street Journal, and Newsweek, among many other publications. He is perhaps best known as the author of the classic Economics in One Lesson (1946).

High Taxes vs. Incentive and Revenue
April 7, 1947
In a recent Gallup poll the question was asked: "About how much do you think a married man with two children who earns $50,000 a year now pays in Federal income taxes?" The typical answer was $9,000. The actual tax on such a net income, however, is around $24,000. It would be instructive to learn how many people know that a $300,000 net income shrinks to $66,000 after taxes and a $1,000,000 income to $161,000.

In its March letter the National City Bank publishes some illuminating income-tax tables. One of these shows how much is actually left at various income levels for the taxpayer himself out of every extra dollar he earns. The figures are for a married man with two children and legal deductions of 10 percent of his gross income.

See the rest at the link.

The Cost of "Soaking the Rich"
March 22, 1948
If the Republicans and Democrats in Congress were not mainly engaged in trying to outmaneuver each other for votes, and if they understood the real economic situation that confronts them, they would be debating an entirely different measure from the present tax bill. They would try to apply the ax first of all not to taxes but to expenditures. If they concluded that overall spending could not in fact be substantially cut, they would not be planning an inflationary slash in taxes of $4,800,000,000 to $6,500,000,000.

But they might be considering, not how many voters could be exempted completely from income taxes in order to support a short-lived illusion that the present enormous tax burden can be borne by a minority, but how far excessive tax rates on high incomes should be reduced to restore incentives to production and investment. For the funds that the present income-tax structure takes are precisely those that would have gone principally into investment — that is, into improved machines and new factories to provide that increased labor productivity which is the only permanent and continuous means of increasing wages. An even more important effect of taking so much of the taxpayer's earnings, in fact, has been to diminish or remove the incentives to bring such earnings into existence.

About a year ago in this column (April 7, 1947) I presented a table, based on income-tax returns, which brought out some striking facts. In the period between the three years 1926–28 and the year 1942, our total national income increased 58 percent. But total incomes over $300,000 fell in that period by 77 percent. If individual incomes in each group had risen by the same percentage as the national income, total incomes over $300,000 would have risen by a much greater percentage (because all incomes previously above $190,000 would in 1942 have been counted among incomes over $300,000). Yet even if the aggregate of such $300,000 incomes had simply risen in proportion to the whole national income, the total of such incomes in 1942 would have been seven times greater than it actually was.

See the rest at the link

Soak Rich and Hit Poor
April 5, 1954

........Let's try to set down some of the main objections:

1.It is a dubious moral principle, an abuse of democracy, and an invasion of minority rights, for a majority to impose on a minority a higher tax rate than it accepts for itself.

2.The legal requirement of time-and-a-half wage rates for overtime is based on the assumption that progressive incentives are necessary to get people to work longer and that progressive rewards are justified as the workload increases. But the present income tax is based on precisely the opposite principle of decreasing rewards for increasing work. Take, for hypothetical illustration, a top-level surgeon who averages $500 an operation and might take on 240 paid operations a year. This would bring his income before taxes to $120,000. For his first operation in January he would get and keep $500. Going into February he would only be earning net (after income tax) $310 per operation. Along about June he would be getting (net) only $140 an operation. And when he got into November he would be turning over $445 of every $500 fee to the government and getting only $55 for himself. Under the present income tax the same principle applies, if less dramatically, to the incomes of all of us. The more hours we work, the less we get paid per hour.

3.Under this system people are penalized in direct proportion to their productiveness. Inevitably this tends to kill incentives to production and reduces the total national income and living standards.

4.The progressive income tax skims off precisely the funds most likely to go into new investment — into building the new tools and equipment that increase the productivity of the country and lift the living standards of the workers. It slows down the rate of economic progress.

5.And lastly, these confiscatory rates do not even raise revenue. They destroy the sources of revenue. The great illusion of the present age is that through these confiscatory rates we have been able to throw the burden of huge government spending on to the very rich. But analysis shows that only 8 percent of the personal income tax is paid by those making more than $100,000 a year, and only 16 percent is paid by those making more than $50,000 a year. Looking at the matter from the other end, 74 percent of the income tax is paid by people earning less than $25,000 a year, and 59 percent of it is paid by people earning less than $10,000 a year.

The rest at the Link above.