One of the major policy debates in America these days is the tax rate on the high-income groups. Those who oppose higher tax rates on the rich people often hide behind the claim that lower tax rates help create jobs and are essential for economic growth. At the same time, there is no shortage of media channels who communicate the same message to the public that tax hikes on high income groups will hurt employment levels and the overall economic growth. Such media channels usually have conservative ideology or strong ties with high-income groups such as Forbes and Fox News. For example, an online article on Forbes claims that tax hikes on the top 2 percent will cause more pain to the rest of the 98 percent than those whom the tax hike is imposed (Cadlec, 2012). Similarly, another online article on The American claims that it is a false claim that tax increases on the rich do not hurt the economy. This article also repeats the conventional argument in opposition to tax increases that it will hurt the employment levels and the overall economic growth (Sanandahi & Malm, 2011).
Not surprising, Fox News has also published many articles in opposition to higher tax rates on the rich people. An article published on Fox News website last May even equates calls for higher taxes on rich people to bullying because like weak kids in elementary school. The article even quotes Tom Giovanetti of the Institute for Policy Innovation that the demand for higher taxes is merely the outcome of class envy (Buckner, 2012).
All of these arguments could not have been farther from the truth and have merely been an attempt to protect personal interests. It is a well known concept in economics that the marginal propensity to consume decreases as the income and wealth level increases. In other words, low income groups spend a greater proportion of any additional income as compared to high income groups. Tax cuts rarely motivate rich people to spend all of the additional income most of which is merely saved or invested. While there is nothing wrong in investing the extra income, the economy benefits most when that extra income is consumed rather than saved. Moreover, one would not expect individuals like Warren Buffet to propose higher taxes for the rich people if there were really destructive for the economy. Buffet has been one of the greatest beneficiaries of the free market system and his willingness to argue for higher taxes could only mean that the cost to the national economy of lower tax rates on high income groups exceeds any potential benefits.
Even nonpartisan Congressional Research Service (CRS) has claimed that there is no evidence supporting the argument that higher tax rates on rich hurt the economy. In fact, CRS reached the conclusion that raising tax rates on high income groups will actually benefit the economy. The research study by CRS also found what has been long suspected that lower tax rates on the rich has merely increased the income quality (Dominguez, 2012). The lower tax rates on investment income which favor high income groups make little sense because income from investment comes from activities that add little or nothing to the national production activity. In contrast, personal income often results from activities that help grow national GDP yet they are taxed at higher rates. One also wonders that if lower tax rates in rich really help lower unemployment rate, why there has been little contribution to lowering unemployment rate from high income groups since the beginning of the recent financial crisis.
- Buckner, G. (2012, May 29). Why Taxing ‘The Rich’ Doesn’t Work. Retrieved April 14, 2013, from http://www.foxbusiness.com/personal-finance/2012/05/29/why-taxing-rich-doesnt-work/
- Cadlec, C. (2012, December 3). Why President Obama’s Tax Hike Will Hurt the 98%. Retrieved April 14, 2013, from http://www.forbes.com/sites/charleskadlec/2012/12/03/why-president-obamas-tax-hike-will-hurt-the-98/
- Dominguez, T. (2012, September 17). Taxing Rich Doesn’t Hurt Economy: DNews Nuggets. Retrieved April 14, 2013, from http://news.discovery.com/human/rich-tax-cuts-dont-equal-growth-dnews-nuggets-120917.htm
- Sanandahi, T., & Malm, A. (2011, August 16). Obama’s Folly: Why Taxing the Rich Is No Solution. Retrieved April 14, 2013, from http://www.american.com/archive/2011/august/obamasfollytaxingtherich