29 April 2013
Taxing or Not Taxing the Rich
What is the most palpitating issue publicly discussed in the US now? Without doubt, it concerns US economy, its deteriorating position and the ways to cure it. Robert Reich, an American political economist and commentator, decided to put some skin in the game and published the article with unpretentious name “Why we must raise taxes on the rich”, where he suggests raising the tax on income of top earners as a catalyst of economic growth. Obviously, he misinterprets certain economic models, openly juggles with nicely sound stereotypes, and fails to investigate the roots of the economic problem.
At first glance, the fact that super rich pay dramatically lower income taxes now than they did in 1950, as mentioned in the article, strikes the reader with seeming unfairness. Yes, it sounds good and fair that the income should be taken from those to pay and redistributed among those who need it, as in Robin Hood scenario. And yet, it is still true that such changes in income rates did occur since World War 2. But it is not indicative of any severe and unforgivable mistake, which needs to be revised at soonest in order to reach the magical number “$ 350 billion” in tax revenues and solve nation’s issues, as proposed by Reich. In spite of the seeming benefits of imposing higher taxes on the rich, such as redistribution of income, ability to pay and fairness, higher marginal or effective tax rates discourage productive activity of the rich, creating disincentives to take risks and produce more. Such policies mean less potential profit, so individuals are less likely to invest and start new businesses, and more likely to cut current working places and reduce salaries. In short, productive performance is discouraged leading to a decrease in economic growth, opposite to what is “wisely” suggested by Reich. It could be vividly demonstrated with the example given by Roger LeRoy Miller, Research Professor of Economics, in