While my goal at the Federalist Farmer is to be as unbiased and non-partisan as possible, there is a current debate milling around this election which I would like to briefly discuss. A point that President Obama has brought in both debates, as well as at several speeches and rallies, is the tax rate on the wealthy two percent of Americans. He, along with many other Democrats, believes that the “mega-rich” have a duty to pay more taxes to support their unfortunate countrymen. Former Massachusetts governor Mitt Romney, along with a large faction of the Republican party, believes that such a tax increase would punish success, reward laziness, and take a big step towards a socialist United States.
The Democratic argument centers on a few basic points. The nation’s economy has gone through a recession and an extended stagnation the last five years, leaving nearly everyone worse off than they had been. Many medium and low-income families got foreclosed upon, lost their jobs, and were forced to rely more heavily on social welfare programs such as food stamps and TANF (Temporary Assistance to Needy Families). While most level-headed Democrats will not deny that even the wealthy in the nation suffered from the sputtering of the economy, they argue that due to their high incomes or overall worth, it is the patriotic duty of the wealthy to pay more to help their fellow Americans.
One reason for this is simply the fact that the highest income earners can, for lack of a better term, “take it.” This is to say that due to their substantial income, they can afford to pay a higher tax rate than the rest of society and still live comfortably. Take, for example, the CEO of Nike, Mark Parker. According to Forbes, he makes a modest sum for a chief executive officer, bringing in just above “only” ten million dollars a year. Under the current tax rate he would pay three and a half million dollars in income taxes per year. This leaves him with over six million dollars, more than enough to live on. Even if he were taxed at a rate of ninety percent, he would still earn a little more than a million dollars, an income higher than the majority of American families. Another detail that supports increased income tax rates on the wealthiest Americans is their frequent ownership of high volumes of stocks. Parker, for example, owns enough stocks just in Nike that should he sell them all, he would make thirty-one million dollars. The highest income Americans have enough other sources of wealth, be it stocks, bonds, non-stock investments, or any other of the myriad of securities, that if their incomes were taxed at a higher rate, they would still be able to live without worry.
Republicans typically refute this claim, arguing that those who succeed are unjustly being punished for the failures of the unsuccessful. A common, and very flawed, analogy used in class rooms usually goes as follows: In a classroom of twenty students, a few (to follow the roughly two percent of Americans President Obama would like to raise taxes on, we shall say four) students study very hard and get high grades, almost perfect, while the rest range from average students to those too lazy to care and fail. The teacher then, in the interest of fairness, equalizes the grades so that every student passes, dragging the four high achieving students down and the rest up.
As I mentioned, the analogy is very flawed and corrupted. First is the perception that the four students who earned the highest grades obtained them through sheer force of will, while those who failed were simply lazy, too interested in drugs, or content to know that the teacher would even them all out eventually. This implies an equal playing field for all students which is likely not the case. While there is a chance that one or two of the failing students simply did not care, it is more likely that they either had learning disabilities, a lack of acceptable prior education, a fractured family life, or a myriad of other social reasons for “failure.” Additionally, while it is again possible that one or two of the successful students claimed their way to success by their own mental fortitude, it is just as possible that they were born into a prosperous, stable family, had access to better prior education, and could afford the latest technology to stimulate learning, as well as other factors.
The last flaw in the class room analogy is the fundamental difference between grades earned in a classroom and money earned in the real world. Grades are, for lack of a better term, entirely passive. They affect only the individual who receives them and are utterly unaffiliated with what any other student has earned. Money, on the other hand, is entirely active. Every dollar one makes is one less dollar that anybody else can make. The flow and distribution of money through income is regulated by a highly complex market system that few people truly understand.
With the class analogy satisfactory denied, I can return to the topic at hand, which is the Republican reply to the appeal to their patriotic duty. While some dismiss such a concept as being “un-American,” thereby freeing them from patriotic duty, others argue along similar lines as the imaginary students, claiming that nobody helped them reach success, so why should they be required to bail out those who have failed? This argument, however, fails for the same reasons as that of the successful students in our analogy. The concept that anyone in America has truly reached success entirely on his or her own is tremendously short-sighted.
To paraphrase a quote from Socrates in Plato’s Crito, the government established the framework for anybody to succeed by providing such essential things as primary and secondary education, roads, bridges, communication systems, and security. Since the American government, as described by President Abraham Lincoln, is “of the people, by the people, for the people,” it can be interpreted that in a non-direct way the services provided by the government which enable anyone to succeed are in fact provided by all other citizens. Therefore, nobody succeeds without the help of the entirety of America, obligating him or her to assist others in their attempt to reach success as well.
An additional argument typically employed by Republicans against increased taxes on the wealthy is that since the wealthy are job creators, tax increases on them will result in the unemployment rate rising even further. Often cited as proof of this claim is data by the Bureau of Labor Statistics (BLS) showing that since the Bush tax cuts, which lowered the marginal tax rate for the top income earners to thirty-five percent, unemployment hovered between four percent and six percent, a remarkable rate considering any number below five percent is considered full employment. They also state that, while President Obama has not yet raised the tax rate of the highest earners, his repeated threats has caused confidence amongst the wealthy to drop, leading to the increase of unemployment we have seen in the past four years.
Once again, the argument of the wealthy is fundamentally flawed and manipulates facts. While it is true that unemployment rates were low under President George W. Bush, there is no correlation between his tax cuts and the low unemployment rate. In fact, between 1995 and 2008, the unemployment rate passed six percent thirteen times, all of which came under President Bush. While it is true that when President Clinton took office in 1993, it took twenty months for the unemployment rate to drop below six percent, each month saw the unemployment rate drop and he began his first term with a high rate after a recession in the late eighties.
President Clinton saw unemployment rates drop below four percent in 2000, the lowest rate since 1969. It was not low taxes, however, that reached this low, as taxes on the wealthiest income earners was just under forty-percent, higher than they are today. By comparing the unemployment rates provided by the BLS and historical tax rates provided by the Tax Foundation, a non-partisan think tank based in Washington D.C., it is virtually impossible to connect unemployment rates with the income tax rate on the highest income earners. The clearest example of this comes from 1952-1953, when the unemployment rate at its highest was four and a half percent, and at its lowest stood at two and a half percent. The income tax rate for the wealthiest Americans in those two years was ninety-two percent.
The claim that increasing taxes on the wealthy is part of a calculated plan by liberal Democrats to usher in an age of socialism in the United States shows either a deep contempt for or simply a remarkable ignorance of historical facts. If taxing the wealthy above thirty-five percent is back-breaking socialism, than America has been a socialist country since the 50’s. Surely in the era of HUAC and the height of the Cold War, Congress would not have passed a tax plan that could be called socialist; it would have been the most brazen political suicide in history. In fact, from 1950-1963 the highest tax rate was, as stated earlier in the 1952-53 example, above ninety percent. The presidents during those fourteen years were Truman, Eisenhower and Kennedy, all fierce Cold Warriors. From 1964-1982, the tax rate was lowered into the seventy percent range under Presidents Johnson, Nixon, Ford, and Carter and Reagan. President Reagan also oversaw the drop from seventy percent to fifty percent and even further down into the thirties where we find it now. Comparing the downward trend in tax rates to the unemployment rate from 1950 to the present shows absolutely no correlation whatsoever.
It brings me no pleasure to attack either political party, but I fail to see the logical reasoning for refusing to pay higher income taxes when income at the top of society is expanding much more rapidly than that at the bottom or even the middle. Perhaps one of my (few) readers could point me towards a clear-headed argument in favor of lower taxes for the wealthy that acknowledges the utter nonsense that is “lower taxes on the wealthy creates jobs.”