Why the rich should NOT get a tax hike next year.
By Bob | July 30, 2010
Some of you are already mad at me based solely on the title. I'm okay with that. Hear me out.
First, let's get the following out of the way:
1) This is a very contentious issue
2) The definition of "rich" is arbitrary and relative. For the purposes of this post, I'll use those with incomes (combined or otherwise) of over $250,000.
3) I am not rich (at least by my arbitrary definition of financial wealth)
Now that we understand each other, let me lay out my reasoning.
1) The rich buy stuff.
2) The rich employee people.
3) You might be rich someday.
4) Some of the rich aren't rich.
5) Let's stop punishing success.
I could end the post here but let me further explain.
1) Wealthy people buy lots of things. When their tax burden goes up and even when a tax increase is suggested, they buy less stuff. That hurts the economy. Many wealthy families have more disposable income than the average per capita personal income of $39,138. That means they are able to spend more than $39,000 on things they really don't need but that perhaps you or your company sells. Take Chelsea Clinton's wedding for example. What small town wouldn't want a wealthy family to come spend $3,000,000 in one weekend?
2) The rich employee people. When I hear someone complaining about the wealthy I ask them, "How many poor people have you ever worked for?" The answer is always the same: zero. Wealthy individuals are often wealthy because of the businesses that they run or have started. When their taxes go up, they are less likely to expand their business by creating jobs, expanding infrastructure and (ironically) becoming more profitable.
3) You might be rich someday. Do you really want to work for six months of the year for the government and only get to keep half of the income that you worked so hard to earn?
4) Some of the rich aren't rich. I'll probably do a whole post on this some day. The small business owners who are reading this are already saying, "Thank you!". Let's suppose you own a small business. You employee 20 people. Your sales for the year were $2,000,000, with a $200,000 profit. Your salary is $50,000. You are rich. "Why?," you ask? Because most small business are sole proprietorships, partnerships, LLCs or S-Corporations. The profits from all of these business entities get recorded on the owners 1040 as income meaning your $50,000 just got $200,000 added to it. Ouch.
5) Our income tax code is set up to punish success. If my son sells lemonade one weekend, he keeps the profit, no questions asked. If he sells lemonade every weekend of the summer and earns $5000, he pays no taxes. If he hires his three siblings and they set up four stands and work them for the whole summer and he earns $10,000 after paying his siblings, he begins to pay taxes. If the company grows someday and becomes a business with 30 employees and he pays himself $60,000: more taxes. Then he takes it regional. 150 employees, a $300,000 salary, and a lot of taxes. Why grow it to 1000 employees? Why take it national? Is it really worth it?
Now at this point some of you are saying, "What about the deficit? We have to raise taxes to reduce the deficit." Wrong. Before my wife and I got married we committed to do something radical, something that many families, most states and Washington D.C. can't do. We decided to live on less than we make. No matter what. It hasn't always been easy, but it works. My solution to the deficit: spend less than what comes in. Washington D.C. can not create jobs or stimulate the economy by taking from the economy.
Let's not make a struggling economy much worse by raising taxes on the only people with the ability to truly stimulate the economy and create jobs. Leave the rich alone.