Voters are told by politicians that the government can raise more money by increasing taxes on the rich. However, they must follow the logical progression of the effect of higher taxes on the rich to see the true impact.
For example, increasing taxes reduces the number of jobs in the private sector. Higher taxes mean the rich have less money to spend for goods provided by the private sector and less money to invest. Less money spent in private-sector consumption means few private-sector jobs. (Housekeepers, gardeners, artists, jewelers and high-end restaurant personnel need to begin looking for new jobs!) Less money to invest means less money in the bank that can be loaned to consumers for homes. It also means less money is available for businesses to expand and hire more people.
Taxing the rich does not hurt those who are already wealthy as much as it does those hardworking young people with the drive and intelligence who add the most value to our society and who are trying to become wealthy. It is the entrepreneurs and small-business people in the U.S. who provide the bulk of the jobs and most of the country’s growth. If the entrepreneurs and small businesses have less money from their enterprises, they will have less money to invest in their business and therefore will hire fewer employees. If taxes are high enough, they may even decide the risk of being an entrepreneur and small-business person is not worth the risks.
Historically, the Laffer Curve shows us that when marginal tax rates are increased, the government generally takes in less revenue as taxes because people modify behavior to reduce taxable income in order to pay less taxes, and there is less economic activity creating income. Americans are not generally aware that the wealthy pay more taxes when rates are low than when rates are high. In 2006, the top 5 percent of taxpayers paid 60 percent of all income taxes while earning 37 percent of the income. The bottom 50 percent of taxpayer paid 3 percent of income taxes. The wealthy paid a much lower percentage of income taxes in the 1960s and 1970s when marginal tax rates where much higher.
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