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  • March 30, 2009 12:23 AM EDT by Brian Sullivan

    The Wealth Redistribution Has Begun But Problems Loom

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    While campaigning, President Obama made the now-famous comment to the now-infamous plumber that he wants to "spread the wealth around" by raising taxes.   He certainly isn't alone these days in wanting to stick it to the wealthy.   Protesters at the G20 meeting, in the streets of New York City and on bus tours of AIG executives' homes are all calling for higher taxes and their populist rage is being heard.   New York state has agreed to a massive tax increase on those making more than $300,000 per year.   Other states are discussing similar moves.   The federal government's tax increase on those making $250,000 per year will begin in 2011.    That hike is also likely to be accompanied by a reduction in the amount of interest allowed as a deduction on home mortgages.   It is  a tax triplet whose cumulative impact is that a doctor in New York making $500,000 per year is facing a tax hike of more than $2,000 per month.   That increase will then be scattered through government spending, a "middle class tax cut" that provides a two-income family with a meager $13 more per week, along with the filling of a variety of state budget gaps, particularly in government employee pension plans.

    The weak economy, bank bailouts, AIG bonuses and a collapsed housing market has created a wave of anger at the top end of the economic spectrum.   Out of work laborers hold signs saying "tax the rich," seemingly under the belief that higher taxes are a panacea to America's, or at least their, economic problems.   Those groups are going to get what they are asking for, as taxes are set to rise on a number of different fronts.   And while the higher tax proponents will net a small political victory, history says they will likely encounter few big changes in their own scenarios.

    Higher marginal tax rates may provide families with a few extra dollars of temporary relief, but are unlikely to provide better job prospects long term.   Higher tax nations do not traditionally have lower unemployment rates than the United States, and periods of higher taxes in America haven't helped the under or unemployed find new work.    In fact, generally the opposite is true.   As an example, higher tax European and Scandinavian countries have traditionally also posted much higher unemployment rates than the United States.  The percentage of individuals actually looking for work (and are thus counted in those figures) is even lower in these countries.   Only a few years ago Italy found itself out of the top 100 list of national employment rates.   Many European nations actual unemployment rates are even worse than the numbers indicate, as there are millions in those nations who live entirely off state sponsored welfare their entire lives and are thus not measured in official data.  France, a country considered a model of socialist economic thinking more than most, is going in the opposite direction of America and cutting income tax rates.   In 2007 the new government led by Nicolas Sarkozy eliminated income taxes on any "overtime" work done beyond the traditional 35-hour work week as part of an overall plan to increase French competitiveness and productivity.

    There also appears to be little positive correlation between high taxes on the wealthy and job creation in America.   The top tax rate in the 1970s was a staggering 70% yet unemployment averaged around 7-8% for most of the decade, topping out above 10% for the first few months of 1983.   Only when the impact of the Reagan tax cuts of the early 80s began to be felt did joblessness fall.  Franklin Roosevelt raised the highest end tax rate to 94%, and while the unemployment rate did fall in the later half of the 1930s it was still more than 17% in 1939.

    The favored argument of those in favor of higher taxes is that the Obama top-end is simply placing the tax rate back to where it was under Bill Clinton in the go-go 1990s.    Supporters of that era tend to forget two important things.  First, the 90s decade was highlighted by the boom in personal computing and the growth of an entirely new industry in the Internet and software.   Second, we found out the hard way that much of the "go" in the "go-go" 90s was based on a bubble economy in tech stocks.    The problem now is that we are recovering from a much bigger economic problem - the housing bubble created by the Fed's interest rate cuts after the tech bubble burst and the terrorist attacks on 9/11.   We also lack a nascent technology such as the Internet to help build a new economy and good jobs to drag us out of the slump as we did in the early 1990s.

    New York is raising taxes on the very top earners by a staggering 31%.   The second highest group of earners will face a smaller but still punishing tax increase of 14.5%.   Assuming many of those earners do not move to lower tax states and their incomes stay the same (big assumptions in this economy), those tax hikes will together add $4 billion dollars to the Empire State's coffers.   It sounds like a lot until you consider that New York's budget deficit is a whopping 400% more than that amount at $16 billion and growing.   Ironically, much of that huge budget gap is due to falling income tax receipts as many of the "rich" Wall Street crowd lose their jobs or make less money.   Until those high paying and high tax generating jobs return, the burden will grow on the fewer high earners left.   That is, until they too finally break down, leave the state or do as many high income earners do and underreport their incomes to get around higher taxes.

    Sadly, it is likely those screaming loudest about higher taxes on the rich who will get hurt the most when they get them.   Travel is already down 30-plus percent to Las Vegas this year and the city has one of the fastest growing unemployment rates in the country.   Retail workers across America are losing their jobs as stores close and companies go under.   Towncar drivers in New York report business is down even more.   The stories are endless, but the spending of those with money is not anymore.   In the end, that doctor in New York will probably take one fewer vacation per year, drive his car for a year or two longer before buying a new one and perhaps even trade down into a smaller home.   Lost in the frenzy though, few will care.   Except for the bellhop at the hotel, the car salesman or the worker at the furniture store.

    Bizarrely though, the higher tax crowd seems to have little interest in discussing real job creation or long term improvements in the economy.   The shouting seems to be more punitive.  Many "working party" type organizations have long pressed for tax hikes on those making more than $250,000 per year, saying that the wealthy should "share the sacrifice."  Notice the  tone of the language.   Instead of "how can we make things better" we instead hear "we should all suffer together."   The implication seems to be that it is more desirable to bring the top down than to try to bring the bottom up.

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Corey in GA

I haven't gotten a response but I'll try again. The problem is not the well-off ($250k-$1m), it is the rich (>$1m). How do these tax rates apply? How is the taxation for someone making $10m per year different from the person making $500k per year? Also, you mention the horrible increase in taxes on the Dr. making $500k per year. Did you mention how his (I assume his, as in a single Dr. getting the full taxation penalty, as opposed to someone supporting a family.) after tax income compares with the 2 income family getting a $13 per week relief? Maybe that $13 per week affects their lives more than the $200 per month (any reason you compared rates on a different time scale? Was it to inflate the apparent impact on the Dr.?) two income family. Finally, you mentioned the "share the suffering" vs "make it better" argument. In 200-2002 many people (including me) were laid off, and the average went down about 5% (if I recall correctly). The average pay among the top 1% of the population? UP about 5%. Is that "making it better" together?! Who decided that laying off 25 people was better than cutting the CEO's pay by 10%?! (Here's a hint. He still has a job!) The CEO is the one whose extravagant pay priced their products out of competitiveness! When the historic compensation trends of the "rich" more accurately approximate the trends of the rest of the population, I will listen to arguments about the "suffering" of the rich.

March 30, 2009 at 6:53 am
(2 Replies)

Dan P.

You know this really does not make economic sense. Who is doing the thinking in the capitals? These huge tax increases are going to do nothing to make jobs and that is a fact. The people in the upper income brackets make the jobs for the lower income brackets. In case you were wondering I am not in the upper income bracket.

March 30, 2009 at 9:06 am

Ozinnh

Lowering the income and capital gains tax rates have always resulted in increased money flow to the US Treasury as well as growth in the GDP. It was true before JFK and was true for Bush's tax cuts ( I believe that the Q3 '07 US Treasury receipts were a record but not reported by the majority of the media). Here are links to the data: Cap Gains Tax Rate vs Fed Revenue Chart from 1960 to 2000 http://www.heritage.org/Research/Taxes/images/50284215.gif Reagan Tax Cuts vs Fed Revenue http://www.heritage.org/Research/Taxes/images/26961470.gif Kennedy tax cuts and Fed Revenue http://www.heritage.org/Research/Taxes/images/58872464.gif These numbers come from the Department of Commerce, Beureau of Economic Analysis, and the Department of the Treasury. Print them up and then tell those who want "to spread the wealth around" what will happen to the economy when the tax rates go up on "the wealthy."

March 30, 2009 at 9:27 am

David in Sarasota

Look at all the communist/socialist states, former and present. Marxist doctrine never works to raise everybody to the highest denominator; it always works to drag everybody down to the lowest common denominator. Everybody that is except the ruling elite. In reality what we are seeing from this government is complete disdain for the common working man. Government programs ALWAYS seek more control of the general population. If the government is able to nationalize the banks and the automotive industry it will gain even more domineering control. The next logical step will be in forcing non-nationalized banks and car companies out of business or out of the country. One need look no further than the old USSR to see where NObama is taking us. What will be the fate of the common man? Abject poverty.

March 30, 2009 at 9:31 am

Wealth Redistribution Has Begun But Not Without Issues And Problems « Romanticpoet’s Weblog

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March 30, 2009 at 9:36 am

DavidJustinLynch

I don't understand why anyone needs $500,000 a year. I get along on less than 25% of that just fine. If I earned twice what I make now, I could use the money, but beyond that, I wouldn't know what to do with it other than to donate it to my Church or to my alma mater.

March 30, 2009 at 9:48 am
(1 Reply)

Bert

And the redistribution will go on until the people affected rise up with anger equal to that of the collectivists. To be blunt about it, the wealthy who helped bring in this Administration by voting in accordance with fashion rather than logic, now need to find the cojones to state, "We made a mistake" and be vocal about it. If too much time is allowed to pass, people will settle into acceptance and the march towards all of us becoming wards of the state will continue. To make an ugly historical point, most of the Jews who were loaded into cattle cars during the Holocaust were loaded by other Jews (Kapos). If you make any kind of income from working, now is the time to resist. Look at the numbers. This Administration cannot stop with punitively taxing those making over $250K. They will have to come down the scale to the rest of us who earn an income by working for any enterprise. Break out you Gadsden flags now and resist!!!

March 30, 2009 at 9:50 am

Dee Adams

Well said as usual Brian. I too have notice that it is not about ending the slums and the ghettos of America. Everything seems to be about having a "ruling" class and a "ruled" class. From "Tea parties" to "hell-no we won't go" how many steps will that be?

March 30, 2009 at 9:59 am

Cindy

Thanks, Brian (again) for your intuitive insight and information. I am convinced that those in power are determined to make everyone in this country "middle" or "lower" class. They WANT the wealthy man's money but by taking so much, how can they remain wealthy? When will we wake up and learn from history? Job creation by these actions? Forget it. The "doctor" you hypothetically speak of would most certainly spend less or perhaps lay off an employee or two once he's hit with the new taxes. It will ultimately stop job creation (as history proves). As I type this, I am watching Obama speak on the auto industry. I'm also watching the stock market drop. He needs to stop talking. Every day I see his face and every day I get angrier at what I hear. Do you really think GM can succeed and come out of this with govt running it? It's a joke. I hope at the very least this convinces companies seeking a bailout to reconsider. They're selling their souls.

March 30, 2009 at 10:34 am
(1 Reply)

Greg Scott

We need to throw away tax code and rplace it with a 10% combined tax on sales of finished goods and on income. 5% and 5%, 2% and 8% - whatever. We are committing financial suicide in this country and I'm tired of it. When has the government ever made a promise it honored in the long run? We don't have the friggin money, and we are giving too much to politicians who are using politics and environmental dogma to invest it on our behalf!?! Deep breathes America - we will get through this, but it is not going to be easy.

March 30, 2009 at 10:36 am
(1 Reply)

Greg

The bottom will always be the bottom, the dregs of society. The top can never bring up those who choose not to contribute and be a functioning part of society. Their president is destroying this country.

March 30, 2009 at 11:10 am

midwest MoM

To tax families that make 300,000 the same rate as Oprah and Spielberg is the problem. You rob some of discretionary income that went right into the economy and the Uber rich will still put money off shore. There need to be further breakdowns. Go with a flat tax and cut out the huge govt. overhead. Why does govt. never think to cut spending? As long as we are punishing success lets stop the Olympics. If we are leveling the playing field I have always felt sad that I could not afford to ski when I was young. So it is unfair that I can't win a medal for skiing. Maybe I could have figured out a way but I knew someday we would have a govt. that would see the unjustice of this and I hope they send me my medal.

March 30, 2009 at 11:44 am

HrdWkr

As my wife and I signed our checks to send to the government for taxes, we openly discussed that perhaps we were working to hard just to see such a significant part of our lives go to the government. We intend to fire (not lay-off) employees over the next 18 months and spend less time working (we both work 55+ hous a week). We'll lower our income under $250K and enjoy what we've saved to this point for a while. may grow back out if/when the return on labor is more worth while. Are you a slave when someone takes more than 50% of your labors?

March 30, 2009 at 12:03 pm
(1 Reply)

Midwest MoM

Hrd Wkr you are not alone. We are doing the same thing. Cut back to $249,999 and have some time to enjoy. We have saved and at 56 don't need to buy new things, we will enjoy the things we have and the free time. We paid our mortgage in lieu of vacations and saved money so now WE QUIT. We don't want to pay a penalty for our success and if people want more go earn it,we did. As small business owners there are a lot of people feeling the same way so jobs will disappear. Punishing the hard working successful is not the way to help the struggling.

March 30, 2009 at 1:19 pm

Jack Woods

The GM "takeover" is done to prevent GM from declaring bankruptcy - as payback to the unions. With bankruptcy re-structuring, the union contract will be gone, and Obama won't have that!

March 30, 2009 at 1:24 pm
(1 Reply)

Dave

Its just funny how histroy keeps repeating itself. We go into recession, we do bailouts, massive govt program, and tax the crap out of everyone, or who we deem the rich. I think its crazy everyone is jumping over a rebate check or the extra 12 bucks a week I get now. Basically I am borrowing my own money, paying intrest on my own rebate. Wake up people!!!!! I really hope everyone who voted for Change you can belive in really appreciates the gravity of what their getting. How long until you CEO is ousted because he isnt doing a good job. How long until your deemed unsucessful that your removed from your job? Why dont we fire people on welfare for 5 years becasue they haven't improved? It just angers me that the harder I work, (growing up poor and going into service for training then college)and more sucessful I am, the more I am punished. Someday, there will be no one left to punish and China will own the world

March 30, 2009 at 1:53 pm

John Reiber

Brilliant, if you could only get the "grade school dropouts" who will be suffering the most to understand what they are doing to themselves.

March 30, 2009 at 2:51 pm

TOO MUCH

Brian....I will just steal the last paragraph of a thread on "News Hounds", I couldn't have said it better. "Picking two decades out of the past seven to push an argument that high taxes equals high unemployment is spurious at best, dishonest at worst." This is not a good way to present statistics.....

March 30, 2009 at 2:54 pm
(1 Reply)

TOO MUCH

Is this blog censored?

March 30, 2009 at 2:57 pm
(1 Reply)

Ish Kabibble

It sure looks like you're cherry-picking nuumbers to support your partisan thesis, Brian. http://www.truthandpolitics.org/top-rates.php The history of economic growth and highest tax bracket doesn't exactly support you. (And of course the fact that more most higher-income taxpayers like you and me, great chunks of our icome is sheletered, thus driving our real rates far below the marginal rate. Between partnership income, municipal bonds and real estate, my own effective rate is currently under 25% though my reported income exceeds $550K.)

March 30, 2009 at 3:42 pm

Leon Ives

Are we headed in the wrong direction. Absolutely! I just can't believe how We, The People, have allowed our representives in Congress to do as they please. Everything I have to say is written in my book, American Tradition & Leadership: Take Back America. You can also visit my free website at americantraditionandleadership dot org. I am not an author or an organizer. I'm just a regular guy who retired from the U.S. Army and the federal government. I wrote this book and with the help up a few friends produced the ATL website. I wish more people would join on-line and show their support in controlling the far-left liberals and Congress. Take an hour of your time and research the website and buy the book. Join ATL on-line. You will see why after your brief research. Thanks

March 30, 2009 at 6:43 pm

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March 31, 2009 at 7:01 am

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  • Brian Sullivan joined FOX Business Network (FBN) in April 2008 as an anchor. He co-anchors the 10am-12pm ET hours of the FOX Business block. Prior to joining FBN, Sullivan served as an anchor for Bloomberg Television where he hosted the programs Morning Call and In Focus.

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