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FRUM: Don't raise taxes for the rich

Commentator David Frum.

TEXT OF STORY

Tess Vigeland: When members of Congress return from Thanksgiving recess, they'll have plenty of leftovers to gnaw on in terms of legislation with looming deadlines. The estate tax, unemployment benefits and, of course, the end-of-year expiration of Bush-era tax cuts. Much has been made of extending cuts for anyone under the $250,000 income threshold. But recently there's been some talk of raising that cap to $1 million.

Commentator David Frum doesn't think that's a solution either.


David Frum: America is not exactly in love with the super-rich these days. Super-rich no longer conjures up Steve Jobs bringing us the iPhone or Google putting all the world's knowledge at our fingertips.

The phrase instead conjures up investment bankers who wrecked the American housing market -- and then dumped the bill on the U.S. Treasury. So you can understand why the idea of a new higher income tax rate for people earning more than $1 million a year has gained political traction.

But it's still a terrible idea. Higher tax rates exact real economic costs: Maybe two dollars in dead weight loss to the economy for every extra one dollar collected. That's according to Martin Feldstein of Harvard and the National Bureau of Economic Research.

One reason that higher rates do so much harm: Very rich people have a lot of economic options. If income tax rates rise too high, they will invest time, energy and money to redesignate their income. If, for example, corporate tax rates are lower than personal, they'll hold income inside corporations. Or their accountants will invent ways to transform income into capital gains or to generate tax losses.

This tax avoidance by the rich is cumbersome and ineffective for the rich themselves. So if the tax rates are set at reasonable rates, tax compliance becomes the better deal. This was the thinking behind the tax reforms of the 1980s: At a maximum rate of 27 percent, it simply was not worthwhile to pay the lawyers to invent tax shelters.

There's a lesson here for today. The job of the tax system is to raise revenues for the state in ways that do minimum harm to the economy. The job is not to punish unpopular groups of people, especially when the punishment does much more harm to the overall society than to the intended targets.

Vigeland: David Frum is the editor of FrumForum and a former speechwriter for President George W. Bush. Commentator Robert Reich is back next Wednesday. Meantime, send us your comments.

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What grows a business people? Supply or Demand? Basic economics 101.

Today, the rich sit on excess cash. How does a tax cut for them get them to re-invest? It doesn't. If a rich person is a good business man, he only re-invests his profit IF there is an increase in DEMAND...which then in turn will potentially result in a stronger investment of capital. So if we cut taxes on the poor/middle class, they spend 97% of all tax cuts. This expenditure increases DEMAND for the rich guy's business, resulting in business an wealth growth for the rich. This is basic Economics 101.

@Howard Bartlett: The link between the top 2% wealthiest class and job creation is not only unproven -- the opposite is true. Most jobs are created by small business, and due to start up costs those rarely hit the $250K income mark until they're stable, and creating LESS if any jobs than they were before. When rich people get a tax break, they put it in savings, doing NOTHING for the economy, and less than nothing for jobs.

Let's have more balance reporting. This commentary was left to stand alone.

This is how they brainwash the sheep

Marketplace needs to report the facts. During the 50's and 60's the top marginal tax rate was 92%, and yet it was our longest period of sustained economic growth. With a high marginal rate, a business owner with a $10 profit could reinvest it all or take home only $1. This was a strong incentive to reinvestment. Cutting taxes gives the rich an incentive to take more money as income and invest it overseas where returns are higher, speculate in derivatives, or buy political office. If they are forced to pay taxes, the government spends the money here immediately, and it goes for the most part to people who have less and will spend it again, quickly. There is no evidence whatsoever that tax cuts for the rich stimulate the economy or that raising taxes on the rich slows it down. The fiscal stimulus if an increasing money supply depends on the difference between taxes and government spending. Taxes have no negative effect on the economy at all as long as the government spends the money in the US. As to the argument that rich people will just find more ways to evade taxes, they already do, and have used their political influence to eliminate most of the IRS audit staff. The way to stop the rich from cheating is to put just one of them in jail for tax evasion. The suggestion that we should cut their taxes so they won't have to cheat is both irrational and immoral.

Please don't just ask your guests for their opinions. Confront them with the facts.

Other countries-like most of Europe-don't seem to cater to the rich the way we do. Maybe the disingenuous nonsense that the rich can't reasonably be taxed just doesn't pay.

Soak the rich! "For every complex problem there is an answer that is clear, simple, and wrong." ~ H. L. Mencken

Soak the rich! "For every complex problem there is an answer that is clear, simple, and wrong." ~ H. L. Mencken

Nonsense. You play, you pay. It really is that simple.

David Frum is totally ignorant and totally dishonest. Pathetic.

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