Obviously, he misinterprets certain economic models, penly 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.
We will write a custom essay sample
on Taxing or not taxing the rich or any similar
topic specifically for you
But It Is not Indicative of any severe and unforgivable mistake, hich 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 alaries. 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 which he describes a Utah physician who produces medical Imaging software and earns millions of dollars In revenues, employing 100 people and exporting his products worldwide.
Before an Increase In marginal Income tax rate his business focused on reinvesting more funds into business, but in the face of an ncrease in income tax rate from 40 percent to 50 percent he changed his tactics by scaling back his plans for expansion, thus reducing production and eliminating few jobs (Miller, 133). There Is no need to say that it generated lower income for both, physician and the government.
It is brilliant that Reich notices
Page 2 Taxing or not taxing the rich Essay
disadvantages of imposing too high taxes on the income of the rich, such as “moving money to the Cayman Islands and other shelters” In this regards he proposes a strict regulation of drawing off American citizenship from those who avoid their obligations. Such a aive blindness prevents him from seeing that it is a natural consequence In a self- regulating economy that many of those earning high annual Income would rationally try to avoid paying higher taxes by willingly moving to other countries glvlng up their citizenship, or putting their Income In an abroad shelter.
Establishing business In a country that has favorable economic conditions is a normal tendency nationwide. I nus, tne tax oase may aecllne In response to nlgner tax rates, generating lower tax revenues than was intended by the government. The point “350 billion translated nto trillions over the next decade” is a myth that vanishes once the issue is closely investigated (Reich). And it was successfully done by the economist, Arthur Laffer, in 1974, who explained the relationship between tax rates and tax revenues with the help ofa Laffer Curve (see fig. 1).
As it can be seen, total tax revenues initially rise, but eventually fall as the tax rate continues to increase after reaching some unspecified tax revenue-maximizing rate at the top of the curve. Fig. 1. Laffer Curve (Miller, 284) Also, in recent years several economists have studies that have shown that “each $1 ax cut brings about an increase in real GDP somewhere between $1. 40 and $3. 00” (Miller, 284) So we must discover the optimal tax rate, which is the lowest possible rate that will produce sufficient revenues to pay for government’s services.
Besides, Robert Reich in his arguments assumes that the government knows better how to use tax money, rather than their owner. However, the economics proved many times in the history that taxing the rich shifts money from the private sector, where it is usually invested and spent efficiently, to the government, where it goes to ampaign contributors, or where it’s inefficiently squandered in government bureaucracies, and not redistributed to lower-wage earners and the needy.
In reality, as Stephen Moore, senior economics writer states in his article “The US Tax System: Who really pays”: The people at the bottom of the scale have benefited directly and indirectly from every tax rate reduction dating back to Kennedys rate reductions in the early 1960s and through the tax cuts adopted early in the administration of George W. Bush. If those lower rates, along with the Alternative Minimum Tax fix, are llowed to expire, the poor will be burdened even more than the wealthy because the whole economic pie will shrink.
It demonstrates how distorted public sector incentives lead to government failure and reduction of economic growth rate. Unless such measures as reducing the debt and deficit rate, cutting spending amount, fixing the Social Security issue, and establishing appropriate tax rates are undertaken, nothing can positively affect economic growth. All delusions vividly expressed in the article by Robert Reich continue to be groundless arguments, the most easy and empting, but fruitless and inefficient in initial intentions. As John F.See More on United States