Are Millionaires and Billionaires the Problem?
In his speech on government debt last week President Obama sought to exploit the complexity of the tax system to deceive The People. Our previous post debunks his implication that President Bush caused the current debt crisis. Further into his speech he implied that “millionaires and billionaires” were to blame:
In December, I agreed to extend the tax cuts for the wealthiest Americans because it was the only way I could prevent a tax hike on middle-class Americans. But we cannot afford a trillion worth of tax cuts for every millionaire and billionaire in our society. And I refuse to renew them again.
He hopes to plant the perception in the minds of people who are too busy to research the facts that “millionaires and billionaires” are under-taxed, and are to blame for the massive debt he has accumulated since his administration began.
Here are some facts:
- The tax rates currently in effect were enacted eight years ago.
- The only thing that happened in December was an agreement to continue those same rates for two more years. There were no new “tax breaks for millionaires.”
- While Obama wants to plant in the mind of the public the perception that millionaires and billionaires are under-taxed the numbers, displayed in the pie charts tell a different story. There aren’t very many millionaires and billionaires and they already pay an enormous share of the total tax bill.
- Based on the latest IRS statistics 320,000 taxpayers who earn more than $1 million, will pay about $260 Billion in income tax this year at current tax rates. Obama’s plan to raise the top two tax brackets to the pre-Bush rates would increase tax revenue from millionaires and billionaires by about $50 billion, or 3% of his yawning deficit of $1.65 trillion.
Class-envy tax hikes impose costs on everyone, not just the high income folks who directly pay the tax bill. High income people are the business owners and investors who risk the capital necessary to expand businesses and create jobs.
As the chart shows most millionaires and billionaires are small business owners.
These are the larger “small businesses” that traditionally create the most jobs. They create new jobs by reinvesting after-tax profits. Every dollar of increased taxation, is one less dollar available to reinvest in expansion and job creation.
The Bottom Line
- More small business expansion is funded by reinvesting after-tax profits than by borrowing. Since the banking crisis began in 2008 small businesses have suffered dramatically reduced access to credit. Therefore, as these businesses recover from the recession their after-tax profits are even more critical if they are to expand and hire more people.
- Government has no system to identify and count the jobs that won’t be created because of tax hikes on “the rich.”
- If Obama’s tax increases become reality government will seize from the private sector some of the resources that empower free people to use their liberty to create prosperity. Politicians will use these resources to support expanded political power and reward special interest constituencies with political connections.