Nothing frustrates this businessman more than the naivety of persons like those who support President Obama and his intent to “tax the rich.”   Just as tax cuts are fought by some as benefitting only "the rich", tax increases are promoted on the basis that the wealthy are not paying their fair share.  Almost as bad, Republicans defend tax cuts that largely benefit the rich as justified because the rich pay the lion’s share of the taxes.   Although this is true, the defense is insufficient and a wholly inadequate explanation of tax cuts.   It is equally insufficient to describe tax increases as merely soaking the rich who already pay more than their fair share.  These arguments don't begin to describe the calamity that could follow this president's new measures to “tax the rich.”  

People who make less than $50K or $60K per year look at their income in the context of consumption.   They need so much for the mortgage, so much for the car payment, the family groceries, healthcare, college tuition, gasoline, utilities, credit card payments, etc.   They then compare their income to someone making 5 or 10 times that amount and say, “They can afford an extra 10 percent.”   Can they?   Can we?  Let’s take a closer look.

We have not yet reached the rich when we are talking about incomes of $100K or even $250K.  People at this income level often live in more expensive neighborhoods, send their kids to private schools and have more expensive cars.  Their consumption is much higher because they have larger homes to heat, more expensive cars to maintain, higher property taxes and they are already burdened by higher income taxes that are paid to all levels of government.  In this sense, their situation is similar to that of those referenced earlier.  They are more likely to be able to put a little away in a savings plan and make some investments but they are by no means “rich.” 

Rich is such a subjective term that I won’t attempt to define it.  I will merely say that the rich do not consume but a small fraction of their incomes on living expenses.  Can the rich then afford to be taxed at a higher rate?  On a pure consumption analysis they can but before we jump to a conclusion that this would be proper, let’s ask ourselves, can we afford to have them taxed at a higher rate?  What might this do to our economy overall?  

You simply cannot measure the income of the wealthy from a perspective of consumption.  You must ask what the rich are doing with their discretionary incomes, that portion of their income that is above and beyond what they consume to maintain their standard of living.   If they make $1 after taxes and consume only $.25, they obviously have an additional $.75 that is available for other uses.   These monies are available to invest whether it is in savings accounts, bonds, stock equities, mutual funds or in their own businesses.   When invested, this money is what businesses use to expand production lines, build new business ventures, make endowments to universities, loan to home buyers, etc.  The money is put to work in the economy.   The result of their investments is the creation of jobs, jobs that may be important to you or to your next door neighbor.  When you make the judgment that the government should take an additional 20% or 25% of these incomes then you have created a situation where you have pulled money out of the economy that would otherwise be invested in new growth and you give it to the government to do what, to consume.   Which would be the most productive use of those additional dollars, to give them to the government to finance the whims of the Congress or to leave them in the economy where they can be used to contribute additional wealth not only to the rich but also to all those who might benefit from the jobs that are created and the money that is borrowed because it is there?   

This also has snowball implications.  When you take billions of dollars out of the pockets of the collective rich as a form of retribution for being wealthy you lessen the return those individuals receive on their investments that are no longer there.  Thus, you have effectively reduced the total taxable base for future years.  You also incentivize “the rich” to find new ways of investing their newly defined discretionary income to avoid those higher taxes.  Perhaps a part of what was not taken that had once been invested in the US economy is now invested in foreign markets.  These foreign incomes are often beyond the reach of the US tax laws and their job benefits are no longer within the reach of the US worker.  There is a multiplier at work here.  Every dollar taken from “the rich” is a dollar that is thus not invested but consumed by government and ultimately results in how many more dollars that are thus unearned by those who might otherwise be employed?  The incomes from the ventures that never are produced are then not available to the government for taxation.  There is a diminishing return when we tax those dollars today rather than taxing their benefits over future years.  There are many ways to describe this notion of taxing the rich because they can afford it.  Here are three and all are applicable.

• Biting off your nose to spite your face
• Eating the children
• Throwing the baby out with the bath water

If we are to have a vibrant economy with full employment and opportunity for all, not just the politicians, we need to recognize that the way to these ends is to provide the opportunity for people to become rich and maintain their wealth.  We need to encourage them to put their wealth to productive use in our economy.   Taxing the rich because they can afford it does not meet this end but destroys the productivity we all require to succeed.