TAXES - What's Too High?

"Taxes: How High Is Too High?" PBS Newshour 1/11/2012

Excerpt

GWEN IFILL (Newshour): Taxes are already a major issue in the Republican presidential primary. And they have been at the center of budget battles throughout the past year.

NewsHour economics correspondent Paul Solman explores the question of just how high tax rates should or shouldn't be.

More excerpts

PAUL SOLMAN: David Cay Johnston is an expert tax journalist, and a successful businessman as well.

DAVID CAY JOHNSTON, Reuters: You know, I'm in the top 1 percent, and I'm trying to make every extra dollar I can, even though I'm at the top marginal tax rate.

I can't imagine saying, no, I'm not going to take this opportunity to make more money because I'm going to have to pay 35 percent of it to the federal government. I mean, that's -- that's nuts.

PAUL SOLMAN: A registered Republican, Johnston says a higher tax rate wouldn't encourage most high-earners to slack off. In fact, it might have the opposite effect.

DAVID CAY JOHNSTON: If it's important to people at that level to have the same after-tax income, what are they going to do? Well, they're going to work harder, they're going to work smarter, they're going to figure out how to make even more money and make their business even more successful, so they can have more money.

And if they don't do that, the difference in their after-tax income isn't going to matter to them and it's not going to matter to society, except we'll have more tax revenue to fund the things society needs to be prosperous.
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PETER DIAMOND, Massachusetts Institute of Technology: If you want to shoot tax dollars in the direction of business creation, you have got to ask, who is it that's having trouble getting financing? It's not the high-earners. It's further down the income distribution.

PAUL SOLMAN: So, if I understand you correctly, you're turning this argument on its head in a way. And you'd say, if your objective is to create more jobs, you might want to lower the taxes on people who are further down the income ladder.

PETER DIAMOND: Those are the people having trouble starting businesses. The top 1 percent have wealth. They have high earnings. They have an ability to borrow. If they want to do a startup, they're not going to be limited by the fact that they're paying a slightly higher or somewhat higher tax on their earnings.

Peter Diamond's point is what the anti-tax Republicans do NOT believe or understand. The top 1% income earners do NOT need lower tax rates to invest and grow our economy, they already have the money to do that.

It IS the lower income earners who need the lower tax rates, which includes most of us.

As a simple example, if you have a savings account, your money is an investment that helps our economy because your bank makes loans to others using your money (that why you get savings interest). But if you do NOT have a savings account, because you spend your entire income to live, you are not investing in our economy.

Note that the current argument of "raising taxes on the rich" is the spin of the Republicans. The current argument is to return the tax rate for the rich to what is was pre-Reagan tax cut.