Obama's Tax Hikes Expected To Have Little Impact On The Rich

Obama's Tax Hikes Expected To Have Little Impact On The Wealthy

Tax the rich, a frequently cited conservative argument goes, and the rich will retreat. They'll stop hiring; they'll stop investing; they'll stop spending. In turn, this will hurt the lower and middle classes. Tax the rich, and the whole economy suffers.

When Obama laid out a proposal on Monday to reap $3 trillion to be put toward the national deficit, with about half of this money coming from higher taxes on corporations and wealthy Americans, Hill Republicans immediately closed ranks against it. And the argument that taxing the rich would stifle economic growth emerged as a popular critique.

But the idea that taxing the rich will slow economic growth and work against job creation doesn't stand up to inspection, say experts.

"We had very high top marginal tax rates in the '50s and '60s, upwards of 90 percent," New York University economics professor Edward Wolff told The Huffington Post. "And we had our highest growth of the post-war period, perhaps the whole century."

By contrast, he said, the presidency of George W. Bush, a time of low tax rates for the rich, was accompanied by underwhelming growth -- or no growth at all, during the years that the economy was in recession.

Historically, there's "essentially no correlation" between tax rates for the rich and economic growth, Wolff said. To argue that taxing the wealthy will necessarily damage the economy "is at best specious, at worst perverse."

One reason that a higher tax rate for the rich might not translate to a drag on economic momentum is that the country's top earners often don't circulate the majority of their wealth.

"People who'd be swept up by this tax are already not spending their whole income," Daniel Markovits, a law professor at Yale Law School, told The Huffington Post. "They're saving it."

The president's plan calls for limiting deductions on high earners, closing tax loopholes on special interests and allowing tax cuts passed during the Bush years to expire. Those tax cuts are believed to have been largely ineffective as a form of stimulus, since evidence suggests that wealthy recipients simply held onto the money they got back.

Assuming Obama can get his tax hikes through Congress, they -- like Bush's tax cuts -- are expected to have relatively little impact on the spending habits of the affluent.

"My sense is that if you're making over a million dollars a year and you have an increase in taxes, that is not really affecting your lifestyle," said Steve Bergerson, a senior consultant at Marks Paneth & Shron, a New York accounting firm that handles wealthy clients.

"When you're in that strata, when you're up there, you've got your spending habits pretty much the way you like it," he said.

Obama's plan also includes a measure known as the "Buffett Rule," which stipulates that Americans who make more than $1 million should be subject to the same tax rates as middle-class earners. The provision earned its nickname from billionaire investor Warren Buffett, who wrote a widely-read op-ed in The New York TImes last month arguing that wealthy Americans pay less than their fair share of taxes.

Buffett's sentiments are far from uncommon -- even among the wealthy, said Annette Nellen, a professor at the San Jose State University College of Business.

"There's a lot of millionaires who want to have a tax increase," Nellen told The Huffington Post.

People like Buffett, or the members of Patriotic Millionaires -- a group of high-earning Americans who have called for a higher tax rate on people like themselves -- don't just represent "a boutique or niche sentiment," according to Markovits.

"If you look at voting patterns, voting for the Democrats in particular is highly correlated with education, and therefore with wealth," Markovits said. "There's a quite big chunk of people who are rich or expect to become rich who are voting for politicians who would raise taxes on them."

Popular in the Community

Close

What's Hot