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Taxing the Rich

April 25, 2011

Taxing the Rich
by Kerby Anderson

Once again there is a call from manypolitical leaders to tax the rich in order to increase revenue andreduce their federal or state deficits. And certain polls show anincreasing sentiment among voters that the rich should pay more intaxes.
Whether the rich end up paying more intaxes will certainly be debated in Congress and in state legislaturesfor many years. But I have found that many of the arguments used tojustify taxing the rich aren't very convincing.
For example, one caller to my radioshow said he believed that the rich should pay taxes at 35 percent. Itried to point out to him that's what they already pay in federaltaxes, and they actually pay more than 35 percent when you add instate and local taxes.
I asked him and have asked othercallers what percentage of the overall taxes they felt the richshould pay. Obviously they believed that the top 5 percent of earnersshould pay more than 5 percent. No one yet has said they should paymore than half of all the federal taxes. Actually, the top 5 percentpay almost 60 percent of the taxes.
Many states are dependent on taxing therich. Nearly half of California's income taxes came from the top 1percent of earners. In the year before the recession, 41 percent ofNew York state's income taxes came from the top 1 percent ofearners. Not anymore. High earners often have volatile incomes. Topearners filled the coffers of states like California and New Yorkduring a boom and leave them with significant deficits in a bust.
Perhaps the greatest economic mythpromoted these days is that taxing the rich will sharply reduce thedeficit. The Wall Street Journal reported the other day that usingInternal Revenue data, "the entire taxable income of everyone over$100,000 in 2008 was about $1.582 trillion. Even if all theseAmericans - most of whom are far from wealthy - were taxed at100%, it wouldn't cover Mr. Obama's deficit for this year."
The slogan that we need to be "taxingthe rich" is an easy statement to make in a campaign. But thereality is much more complex because the economic facts contradictmany of the claims of those promoting the slogan. I'm Kerby Anderson, and that's my point of view.

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