Obama’s new stimulus package includes components that will supposedly raise taxes on those above 200k, and includes a “Warren Buffett” clause concerning capital gains tax. The merits of the specific plan will have to wait, as we don’t know the specifics yet. However, the debate surrounding the abstract ideas of raising taxes on only the wealthy has republicans claiming that these propositions are class warfare. I’m not convinced that’s true at all.

I do not think its unreasonable to say that some liberals are simply class warriors and hate the rich for being rich. It is also very easy to simply to blame the wealthy for our problems, and yet look to them to solve them. But that can only go on for so long. But the practical aspect is not what, I think, conservatives are clamoring about. It is plainly unethical to punish the rich for being rich, and to put an unfair burden on those who have been successful. The government should not have unlimited rights to garner whatever money they wish from its mostly wealthy citizens.

With all of that in mind, we should only be looking to rely on tax increases on the rich when we can strongly justify it…which I think we can, via the following:

1. The profit incentive for hard work is disappearing.

I don’t know why no one is talking about this. I pointed out recently that despite productivity increasing tremendously, median income has not increased. People are working harder but not earing more, unless they already earn a lot. Its the old “Rich get richer,” expect its actually happening. People stuck below the threshold are finding that “work hard and rise up” truism of America is starting to sound hollow. Risk takers are making the real money, while hard workers are likely to remain only that. Furthermore people who do not want work an inhuman level of hours (80+) in order to make that truism come to life simply have to accept making less. For many, the trade off between a normal work week and 60k v 150k a year is one they are willing to make. As for those who are making the sacrifice…it is concerning to think about what that might dictate about the kind of people who are becoming executives.

2. The ultra wealthy doesn’t necessarily deserve the sums that they earn.

Bailouts. Its impossible to know how many millions in personal income have been funded by taxpayer bailouts. The old conservative argument, which I generally strongly sympathize with, that taxes are a imposition of state power only to be utilized when absolutely necessary because it a taking of one’s natural property, falls flat here. There are many wealthy executives within investment firms and banks in this country that are only financially alive today because of tax dollars. Billion dollar bailouts mean we per se do not have a purely free market economy, nor should be abide by those pure ethical standards.

Even the very economically conservative Gary Becker recognizes the unfair nature of the current taxing system.

3. The ultra wealthy disproportionately benefit from society, they should disproportionately give back to society.

Virtually everyone agrees that it’s the government’s job to provide general infrastructure. This is a job that government can and should do. However, infrastructure often benefits corporations and those who profit from those corporations more than anyone else. Often, the government will invest in particular infrastructure projects simply so corporations and executives can benefit from them. Once again, we are not living in a free market economy.

Once more, bailouts. The nasty reality is that too-big-to-fail is here to stay until we make dramatic changes to our finance system. Bailouts eventually do benefit everyone, especially when they prevent global financial collapse, but they also directly Wall Street fat cats at a disproportionate level. We all benefit from the financial system, but those working within it making millions each year are clearly benefiting more.

Essentially, large corporations and executives cannot claim that they utilized only private resources to make their fortunes. The bigger they are, the more likely they relied on government in ways that practically make them a partially government enterprise. Their ability to make huge profits were enabled by the government, and its time for them to pay back into the government.

4. Taxes, in general, need to go up. Who should bear that burden? (And they need us to use it)

Taxes are at historically low rates. Currently, taxes take up only 15% of GDP, which is the lowest it has been since the 1950s. We’re running huge deficits, and part of getting rid of those deficits in a timely manner ought to include tax increases on those whom can afford them without dire consequences.

The smallest percentage increase on the highest levels of wages would garner the greatest sums of money. This is just simple math.

5. The vast majority of americans belong to a class of working poor.

These are generally people who were raised without huge advantages. They generally did not take massive risks, and have not been wildly successful, however

• They work
• They work long hours
• They work multiple jobs
• They pay taxes (but get much of it back)
• They are earning less money, but working more.

Think you don’t belong to this group? Unless you’re making more than 166k, you’re in the bottom 95% of americans. Did you get a raise this year? Was it above inflation? How many hours did you work this week? Sound familiar?

6. Buffet got it right: as a nation we coddle the ultra wealthy.

The United States in particular suffers from almost unthinkable levels of inequality when compared to the rest of the world. Buffett is categorically correct in this regard, we are a nation which coddles the ultra wealthy.

7. The fuzzy impact on the economy.

Its really not clear that this will hurt the economy like some Republicans claim. I think most serious economists (and Warren Buffet) don’t actually think this will reduce investments to a point where the economy will suffer.

Now, for the problems. Not as numerous, not really as compelling either.

1. The relatively unknown impact that massive changes to the tax code could have.

This will likely come in the form of some kind of tax evasion. The wealthy are inherently people of means. They will do whatever saves them the most money, and that may include doing whatever they need to evade huge taxes. This is made much easier because of our bloated tax code. Who knows what kind of economic activity this will result in. Freakonomics 101

2. Giving the government more excuses not to make hard choices

We still need to reform entitlement programs. This will generally make it easier to ignore this.

3. Its impossible politics.

Rich people donate to politicians. Everyone in congress knows their short list by first name, and if they vote for this they will likely get an angry phone call from each of them. No one likes angry phone calls. Yet for some reason Rep. Paul Ryan claims this is great politics. Certainly there is some populist support for this, but the fact is that a tax that would only apply to those making over $1m was already strongly voted down by congress. It did not seem to be such good politics then. I admit, the “Buffett Rule” is really good populist politics.

4. 250,000k is not really ultra wealthy.

I’ve wanted to do a post about why drawing a line in the sand at 200k or 250k isn’t really reasonable. It’s a controversial idea and I haven’t had the time cover all the research that I would want to do to make an airtight case. Essentially it comes down to a couple of main factors that make it easy to understand why people in and around this group are feeling squeezed.

Firstly, they’re getting taxed as much as people who make 5, 10, 15, 50 times more than them. Second, Those making over 200k have almost none of the huge benefits that other will get. They will likely pay for their children’s colleges, which if they have 2.5 kids should cost them close to 600k. Lastly, as someone who should be wealthy they, and their family, will expect to live a wealthy lifestyle. But if the bread winner is at all responsible it will soon become apparent that they will be living slightly above those who earning a great deal less than them.

Currently the top marginal tax rate is at 380k. That is a figure adjusted by inflation and seems much more reasonable.

5. Class warfare?

This isn’t class warfare. Class warfare is when we target the rich purely because they are rich. Clearly that is not the case, and if anything the wealthy classes have been waging war on the rest of America (and winning in the form of bailouts, other forms of corporate welfare). But class warfare could become an unfortunate reality if, as a nation, we become comfortable with raising taxes on the wealthy as a solution. Doing so would amount to class warfare, and is unethical. However, this is quite unlikely because of the political power the wealthy have.