Thanks to the fiscal-cliff deal (December 2012) which raised an extra $41 in taxes for ever $1 cut from public spending according to American economic commentators and the new Obamacare related taxes, the USA now has a tax code that is more â€œprogressiveâ€ than at any time since Jimmy Carter was president. In spite of that Obama's supporters and those who think the Obamessiah is not 'progressive' enough and Pol Pot would be a better President are continuing to chant their mantra "Tax the rich, tax the rich, in mainstream media and the cybersphere.
It will be interesting to see what long-term effect that has on household-income trends and poverty in the USA.
Tax increases on high-income people may in theory be redistributive, shifting wealth between rich and poor but such policies, whenever they have been tried, always work in the opposite way to what was intended. This is because we pay taxes individually in the short term, but in the long term we pay taxes collectively. Businesses pass on tax costs to employees and consumers as they do with any other cost.Â Production and administration costs rise, prices go up and wages are squeezed in order to maintain margins.And it is the most profitable firms in many cases will be the ones that have the most power to pass on tax expenses to consumers or suppliers.
A high-value worker is one who by definition is in high demand. Design engineers earn big money because a lot of intelligence and many years education are needed to develop those skills.Â The same factors as determine a businesses ability to charge higher prices also enable high value workers to demand higher wages in response to tax increases or other factors that diminish his real income. You see this all the time with financial and tech specialists in New York or Silicon Valley: Workers in that position simply add taxes and other cost-of-living factors into the starting point of income negotiations to make sure their negotiable income remains around the level they want.
Little intelligence and training are required to hold down a job as a burger flipper, brush pusher of box carrier hence these low paid workers are in a poor position to demand higher wages. Anyone can be trained to push a brush or flip a burger.
Thus it should be clear even to the most rabid supporters of Taxfuhrer Obama that you really cannot raise taxes on the rich because they have the ability to raise their income correspondingly and as the related prices increases trickle down people at the other end of the scale are being pushed below the breadline.
Tax hikes on the so-called rich may temporarily decrease the private sectorâ€™s share of income, but they probably will not decrease the real income of high-wage workers, business owners and investors.
Longer term all they do is increase government revenue at the expense of low-wage workers and the unwaged. though it is very difficult to separate the complex relationships between taxes, wages, and prices. But those who say that they are most interested in financial equality and 'fairness' would do well to follow Lane Kenworthyâ€™s example and look at transfers rather than taxes. Means-testing Social Security and other benefits would do more to make the total package of taxes and transfers more progressive than any tax hike. This should appeal to 'progressives' and communists who genuinely want to improve the lot of the needy.
I suspect however that because most of the "Tax the rich" brigade are driven not by conscience but by hatred of the white, middle class, culturally christian society that spawned them (self hatred if you like) and an addiction to peer approval, any policy that would stand a realistic chance of helping the poorest in society rather than simply punishing "the rich" would be anathema.
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