President Obama repeatedly assures us that he only wants higher taxes on the rich as part of his class-warfare agenda.
But I don't trust him. In part because he's a politician, but also because there aren't enough rich people to finance big government (not to mention that the rich easily can alter their financial affairs to avoid higher tax rates).
Honest leftists are beginning to admit that their real target is the middle class. Here are a few examples.
- The New York Times endorsed higher taxes on the middle class in 2010.
- The then-House Majority Leader Steny Hoyer also gave a green light that year to higher taxes on the middle class.
- Earlier this year, MIT professor and former IMF official Simon Johnson argued that the middle class should pay more tax.
- The Washington Post also called for higher taxes on the middle class this year, as did Vice President Joe Biden's former economist.
In other words, politicians often say they want to tax the rich, but the real target is the middle class. Indeed, this is the history of tax policy. In a post earlier this year, warning the folks in the Cayman Islands not to impose an income tax, I noted how the U.S. income tax began small and then swallowed up more and more people.
[T]he U.S. income tax began in 1913 with a top rate of only 7 percent and it affected less than 1 percent of the population. But that supposedly benign tax has since become a monstrous internal revenue code that plagues the nation today.
The same thing is true elsewhere in the world.
Allister Heath explains for London's City A.M. newspaper.
The introduction of income taxes around the world have tended to follow a very similar pattern over the past couple of centuries. First, we get generally low income tax rates, with most people exempt and with the highest rate only affecting a few people relatively lightly. Eventually, tax rates shoot up for everybody – including to crippling levels for top earners – and millions more are caught by income tax. The next stage is that the ultra-high tax rates for top earners are reduced to manageable levels – but ever more people are brought into the tax system, with the higher brackets also catching vastly more folk.
By the way, you can see that Allister makes a reference to tax rates being reduced for top earners. That's largely because many politicians learned an important lesson about the Laffer Curve. Sometimes, the best way to "soak the rich" is by lowering their tax rates. Unfortunately, President Obama still needs some remedial education on this topic.
Allister then looks at some specific United Kingdom data revealing how more and more middle class people are now subject to higher tax rates.
The biggest change in the UK has been the number of people paying what is now the 40p tax rate: up six-fold in thirty years, from 674,000 in 1979-80, 2.5m in 1999-2000 to 4.048m in 2011-12. This number will jump again to around 5m in 2014, according to the Institute for Fiscal Studies. When Margaret Thatcher came to power, just 2.6 per cent of taxpayers paid the top rate; by the time of the next election, 16.7 per cent will.
If Obama and other statists get their way, we'll see similar statistic in the United States. Higher income tax rates for the rich will mean higher income tax rates for the rest of us. Though I'm even more worried about a value-added tax, which would be a huge burden on ordinary people and a revenue machine for greedy politicians.
It's worth noting, by the way, that the American tax code actually is more "progressive" than the tax codes of Europe's welfare states. This is largely because we don't pillage poor and middle-class taxpayers with a VAT.
P.S.: Since I mentioned the Laffer Curve above, I should emphasize that the goal of good tax policy should be to maximize growth, not to maximize tax revenue.
P.P.S.: And don't forget that poor and middle-income taxpayers also will be hurt because slower growth is an inevitable consequence when tax rates climb and the burden of government spending increases.