Leave the Top 1% Alone

by Anthony Gregory
Jul. 09, 2011

Even with a $1.6 trillion federal deficit and record spending, the liberal pundits spout their nonsensical claim that all would be swell if only the top 1% were taxed a bit more.

How does anyone believe it? The idea is preposterous just in sheer mathematical terms. According to Mother Jones, the top 1% of families made on average $1.138 million in 2008. Wikipedia says there are 1.132 million households in this group. Multiply these numbers and we see this hated class makes about $1.3 trillion annually. These are rough calculations but they suggest that even seizing all the income of the top 1% wouldn’t cover the U.S. deficit to say nothing of the rest of the budget. This ignores the fact that they already provide 40% of federal income tax revenue. Soaking them for another few percent per year, or even vastly more, isn’t going to move the government noticeably closer to fiscal solvency, putting aside the resulting destruction to economic growth.

The only way to fix the deficits with tax increases is to terrorize the middle class, unleash the IRS to bloom into its full Nazi potential, and raise rates to the skies. Even this might not work. Since the Korean War, despite all changes in the tax rate and code, the federal government has leveled out at collecting just around 20% of GDP. The federal budget is nearly 27% of GDP today. The deficit is a spending problem unfixable through more confiscation, barring skyrocketing inflation or a taxing regime of totalitarian character.

We are told the rich sit on the lion’s share of the nation’s assets and financial wealth, and so not only their income is at issue. But let us not ignore the assets controlled by the federal government. Uncle Sam owns tens of thousands of buildings, 30% of the nation’s land, many trillions of dollars in assets altogether. Why not hack away at this gross inequity before feeding the monster state more money? Are the rich supposed to be fleeced of their wealth so it can be thrown down Washington’s money hole? The government loses trillions in its Pentagon budgets, not accounting for where the money even goes, and yet we’re supposed to encourage the ravaging with higher tax rates.

Tax cuts do not always shrink government. The Republicans and Democrats are pleased to engage in wild deficit spending. The federal government borrows more every year. Tax cuts in the face of high spending are arguably fiscally irresponsible, pushing the burden onto others rather than really dealing with the problem.

On the other hand, it appears that the U.S. government is going to default on its debt obligations, sooner or later. There is simply no way to reverse course. Or at least there’s no way to do so with the support of more than three or four odd members of the political class. The U.S. is heading toward national bankruptcy and today’s pitiful proposals to shave a few tens of billions off expected increases in entitlement spending will obviously mean nothing.

Given this, the responsible thing is to cut taxes on the rich as well as everyone else. Even if the deficits widen, it will only hasten the realization of the U.S. government’s insolvency and the refusal of people worldwide to lend it more money. This is, overall, a good thing. The American state does little but destroy the peaceful social order and lay waste to foreign peoples. Those who lend it money have no moral claim to get it back, any more than a man who lends a gun to a mob boss, knowing what it will be used for, has a moral claim to have his firearm returned.

Spending must be cut, but even in the midst of high deficits, let us remember that the top 1%, like everyone else, are paying way too much. Two-thirds of Americans recognize they’re overtaxed. Liberals say Americans pay too little in taxes. Nominal rates have been higher in the past, but revenues are still as high as they’ve been in generations. It’s time to try something different: actually reducing the state’s bite out of the private sector.

Better that the rich have more of their money and the government have less. Most of the affluent contribute immeasurably to the wealth of society. They have more but generally produce more. And what about the scarcest of resources – time? Americans have more leisure time than in past generations, thanks to the market’s immense wealth creation. Most of this benefit has accrued to the poor, while very little has gone to the richest 10%. Most rich people work long hours, every day, merely to sustain their wealth-generating enterprises, which benefit us all.

Some will counter that most of the super-rich (which is what the top 1% is often misleadingly described as) do not deserve all they have because the government provides them with a litany of special privileges.

Fine. Do away with the privileges too. End corporate welfare. Stop the bailouts and farm subsidies, the vast bulk of which ends up in the hands of fabulously wealthy corporate farmers. Scrap the licensing and regulations that big business uses to clobber competition. Abolish the Federal Reserve. Terminate the entire military-industrial complex. Halt the "green energy" programs that amount to federal support for favored corporations. Stop the enforcement of patents, which skews the economy toward established industry. Separate the government from the economy as much as humanly possible. Let the moral hazard, welfare for the rich, socialism for the well-connected fall by the wayside.

Liberals almost never propose such things, not very seriously, and elected Democrats virtually never do. They all love the fascism of America’s mixed economy. So do most of the super-duper rich, who suspiciously call for higher taxes all the time, but not for reducing federal intrusion into the market. Cut their taxes. End their subsidies. Sever the ties. Stop the codependency. So long as the super rich are paying taxes, they’ll have reasons to devote their time to manipulating the corporate state. Across the board tax cuts on the rich are part of the anti-fascist cause.

Even most of the crony capitalists who constitute a slim minority of the top 1% are angels compared to the government itself. Whatever harm they do is aided by the state, but they tend to do a lot of good. They’d probably do even more good in a freer market. Regardless, the government has the least claim of all to anyone’s income, as it, unlike the private sector, is incapable of producing wealth as a matter of course. Also, it uses a big chunk of every dollar it seizes to murder and cage innocent people, something of which almost no one in the top 1% is guilty.

As for the poor, cut their taxes too. The left loves to target the top 1% and the right loves to say, crazily, that the bottom 50% pays no taxes. This too is hogwash. For most Americans, payroll taxes are a bigger burden than income taxes. These should be eliminated entirely, for moral reasons and for the sake of honest accounting. They do not go into a retirement fund or insurance program, as the left insists and the right implies by omitting the Social Security and Medicare tax from their analysis of who supposedly pays all the taxes. If these welfare programs continue, best to finance them from the general fund and come clean toward younger workers that they’ll have to save for their own future. Cut everyone’s taxes. Cut all the spending. There is never a defensible reason to increase either.

If we think there is unfairness in wealth distribution, let’s smash the statist programs that have hatched over the years, coinciding with these trends of inequality the left laments. But taxation should be cut always and everywhere, no matter whom it targets. Taxation is the violent confiscation of wealth conducted by the most regressive of all institutions: the state. It destroys wealth and empowers the true ruling class. All taxes, including on the rich, should be slashed as much as possible.

When talking heads and journalists talk about the "top 1%," watch out. They are performing a bait and switch. They are conflating families that make a couple hundred thousand a year, already paying close to half in taxes, with people making billions, most of whom do so with the help of the very government these pundits wish to expand.

But even pampered billionaires are pikers and paupers compared to Obama, whose military fleets and grand executive departments make him an effective trillionaire in terms of the resources he commands. Unlike almost everyone in the top 1%, he didn’t earn a dollar of what he controls.

The deficit problems can’t be fixed even by soaking the rich. But even if they could, given the alternative, the only ethical and economically sound approach is to cut taxes, never to raise them.

Anthony Gregory [send him mail] is research editor at the Independent Institute. He lives in Oakland, California. See his webpage for more articles and personal information.

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