Effect of higher taxes on rich is unknown

Marketplace Staff Nov 22, 2010

Effect of higher taxes on rich is unknown

Marketplace Staff Nov 22, 2010


Tess Vigeland: Congress is off for Thanksgiving vacation, but when it returns, the big question will be what to do about the Bush tax cuts. They’re set to expire at the end of December.

Many economists say they unfairly benefit wealthy Americans. Millionaires and billionaires save hundreds of thousands of dollars and more on their annual tax bills. Middle-class Americans save, on average, $1,000. So, does helping the rich get richer help the rest of us?

Here’s Marketplace’s David Gura.

David Gura: In the U.S., most of the richest of the rich aren’t pro athletes or movie stars — they’re high-paid executives. “Corporacrats” to some. John Katzman’s one of them. He founded a test prep business in the early 80s.

John Katzman: I started the Princeton Review many years ago. And three years ago, I started a new company, and in-between, I funded some others. If that makes me a corporacrat, then so be it.

Katzman joined Patriotic Millionaires for Fiscal Strength, a group made up of millionaires who want to pay higher taxes.

Katzman: I don’t think it would change anyone’s life at all. I don’t think they would invest less. And I don’t think they would spend less.

Generally the rich don’t fill out surveys on their spending, so there’s no way to know if money goes into stocks or hedge funds, and if it creates jobs.

Benjamin Harris: This is sort of the dirty secret of tax policy, is that we really don’t know.

Benjamin Harris is an economist at the Brookings Institution. He says we also don’t know how permanent tax cuts might change their behavior.

Harris: There’s a lot of uncertainty about exactly how the wealthy can respond to tax cuts, which means there’s a lot of uncertainty about how the rest of us benefit.

I asked Yale political scientist Jacob Hacker what we do know.

Jacob Hacker: What we do know is that the gains of those tax cuts didn’t trickle down to middle-class Americans.

But the argument still goes that cuts promote growth and create jobs. Hacker, co-author of a book called “Winner Take All Politics,” says history tells a different story.

Hacker: From 2001 to 2003, we slashed taxes on the richest of Americans, and we experienced a relatively modest economic boom, most of the gains of which went to the richest and not to middle-class Americans.

The Congressional Budget Office says permanent cuts won’t help growth in the long run, and they’d add $700 billion to the deficit. And that’s why millionaire John Katzman signed the letter saying his taxes should go up.

Katzman: I’d like to just think of this as a down payment. It’s someone stepping up and saying, we’ll go first.

And that savings would trickle down.

In Washington, I’m David Gura for Marketplace.

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