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Tax The Rich; Does it Work? (Vol. 97)

Sounds Great in Theory; Is that what the Real World is doing?

INCENTIVES: The most powerful force in the world. Well, that’s my opinion. I am not a psychologist, but you don’t need a PhD in psychology to observe and understand basic human nature. In fact, go no further than the mirror and try to understand yourself and what makes you tick. How will you react if the government wants to take 90% of what you earn? Or tax accumulated wealth that you have worked hard for and have already paid the tax on it? Just how much of my hard-earned money is someone else entitled to? -Thomas Sowell, Economist ‘Fair Share’ - What does that even mean? Take a look at this chart:

The top 1% pay 40% of all income tax, more than the bottom 90% combined (they pay 29%); the top 10% pay 71% of all income tax and the bottom 50% pay 3% of all income tax. So, tell me again, what is ‘fair’? Our income tax code is full of loopholes to help the rich avoid tax. Why? Because the wealthy and connected, through lobbyists, get politicians to enshrine these in the code. Government did that, so fix it. Even with these complex loopholes, the wealthy pay most of the tax. A lower tax rate without the loopholes would make our outlandish tax system much more efficient. There are plenty of sound proposals to make the IRS code workable, but Congress will not do it. Flat Tax, anyone? How about the Fair Tax (see Facts, No Spin #79 for explanation). Cronyism has made our tax code a joke - all 75,000 pages of it. WEALTH TAX: One approach the government is considering is a tax on wealthy people’s assets, or a “wealth tax”. Over 15 Euro countries tried it, including the socialists’ favorite country, Sweden. France repealed it after 42,000 millionaires voted with their feet and left the country, and Sweden abolished it in 2007 after a similar experience. 12 of the 15 European countries that once had a wealth tax have repealed it, and the rest get little income from it. It is both unworkable and unfair, a double taxation on accumulated wealth on which tax has already been paid. INCENTIVES ANYONE? If the government does something stupid enough, people vote - with their feet. TAXING UNREALIZED GAINS: Trying to tax an increase in the value of an asset you have not sold is unfair and almost impossible to implement in practice. And how are you supposed to pay the tax, with fairy dust? Every single economist that has studied these kinds of taxes has come to the same conclusion: no matter how much you ‘Tax the Rich’ there is simply not enough potential tax dollars to pay for all the government we currently have and the expansions to the government that have been proposed. And so the deficits keep on piling up, while the inefficiencies in the tax code keep getting worse.

EURO TAX STRUCTURE: So how do the Europeans handle this? A European-style government with cradle-to-grave benefits would require European-style taxes, and that would mean hammering the middle class with heavy taxes. For example, Sweden has a tax rate of 57% for all incomes of $70,000 or more. And it is 52% for $50,000 of income. (Here in the U S, the marginal rate would be 22%). In addition, they have a 25% VAT tax (value added tax similar to a sales tax) on most goods and services. And huge gasoline taxes. Is that what you want? Is that what you call ‘fair’? If you want big government, the tax will have to be on everyone, and, as you can see, the price will be heavy. And it is an anti-growth strategy, as we have seen in earlier emails (see Facts, No Spin #16, The Formula for Economic Progress). INCENTIVES ANYONE? Want to grow our country and increase prosperity for everyone? Incentives work, so let them. Study after study, real world example after example, all show the same thing. Limited government, economic freedom, and modest taxes correlate to rapid growth in an economy. High taxes kill incentives, reduce capital available to expand production, and retard growth. BOTTOM LINE The demagogues surround us. Fancy slogans and nonsensical proposals abound because they ‘sound good’. And if you do not understand the facts, you may not realize how stupid the proposals are. How about we try things that ‘actually work’, instead of those that ‘sound good’? Look no further than the real world to understand what works and what doesn’t. In the 90’s a Democratic President, Clinton, and a Republican Congress made real progress toward reducing America’s tax burden by working together to support common-sense solutions. Remember Clinton’s speech, ‘The era of big government is over’? And they balanced the budget and ran a surplus, and we grew rapidly. All was good – can you remember the talk of paying off the Federal Debt during the Clinton Administration? Unfortunately, we have unlearned that lesson – under both Republican and Democrat administrations - and are off the rails, big time, today. We must change course before it is too late. Go to our web site and Contact Congress - let your voice be heard. LEARN ECONOMICS, THEN VOTE SMART

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