Your Bloomberg editorial “70% tax rate for wealthy without reform is just soaking the rich” deserves further analysis, and thank you for thrusting the tax issue upon us (ahead of schedule but who doesn’t like talking taxes).
Nobel Prize-winning economist Paul Krugman’s Jan. 5 New York Times column, “The Economics of Soaking the Rich,” provides valuable commentary, citing fellow Nobel economics laureate Peter Diamond for expert opinion on optimal tax rates. His study finds 73% to be the optimal tax rate on the super wealthy, but is this expert opinion too extreme? Martin Luther King Jr., arguably the poster child for justice, said, “When you are right, you can’t be too radical.”
While there’s varying opinion on tax-rate fairness, there’s universal opinion that no one wants to pay them! The agreed-upon goal is achieving maximum revenue that shares the burden fairly, acknowledging that a thousand dollars from a $10 million income-earner is way less painful than getting said $1,000 from a $25,000-earner.
Consumer spending is the driving force in the U.S. economy, comprising 71% of spending in 2013. New spending always has an economic multiplier effect, compelling us to consider the macro impact of the thousand dollars on the two income-earners cited above: $25,000 vs. $10 million, with the increased likelihood that the $25,000 individual will spend the money, providing a higher level of utility as well as additional tax revenue that has a greater benefit to society than the super-wealthy individual, who might not even notice the effect of a thousand dollars on his/her budget.
Tax revenue is absolutely critical to the vitality of society, including police and fire departments and public works and sanitation departments, which is why the essential tax rate fairness issue is so profound.
“They say taking money from the rich to give to the poor makes society as a whole better off” improperly frames this issue, since we’re not talking economic transfer from one private citizen to another. While the super wealthy might largely pay for these essential public services that helps separate us from chaos and anarchy, they, along with everyone else, benefit from a well-functioning society that provides non-negotiable public services, helping everyone at the lowest possible cost.