10 Reasons Not to Tax the Rich. And Why They're All Bad

We hear them all the time, the reasons for unrestricted capitalism, minimal government, lower taxes for the rich. So often that many Americans start to believe them. But the facts and common sense reveal good reasons NOT to NOT tax the rich.

(1) The rich deserve what they earn because of hard work and initiative.

They use other people's money to create assets that don't exist and then bet on them to fail. It seems like twisted humor, but it's real, all part of the murky world of derivatives and credit default swaps. Those who make the most money avoid taxes by calling their income "carried interest" instead of income.

Others not directly involved in financial chicanery still make out well. The stock market has grown 7 times faster than America's GDP since 1981, and two-thirds of the country's stocks are owned by the wealthiest 1% of Americans. That's not enough for some CEOs, though. For many of them it's 'legal' to backdate their stock options to a time in the past when the price was higher.

(2) It's not fair to "soak the rich."

It's been just the opposite for the past 30 years.

Based on Internal Revenue Service figures, if the average middle-income family had just maintained its share of America's productivity held in 1980, it would be making $10,000 more per year ($45,000 instead of $35,000). Some estimates are much higher, up to $30,000 more per year based on Bureau of Labor statistics.

In 1980 the richest 1% got one out of every fifteen income dollars. Thanks to tax cuts and deregulation, they now get THREE out of every fifteen dollars. They already had a big slice of pie, then they cut a second piece, and then a THIRD piece.

Meanwhile, every U.S. taxpayer contributes about $600 a year to pay for the tax cuts that give $34,000 a year to each of the wealthiest 1% of Americans. And now a trillion dollars of public money is used to bail out the failing banking system

(3) "Spreading the wealth" and "redistribution" are other names for socialism.

Not socialism, but social responsibility. Taxes support public infrastructure, including roads, bridges, water treatment systems, railroads. Public money is used to invest in research and development for science and technology.

Much of the tax burden disproportionately benefits the rich: property laws protect private property and capital investment; trade pacts and national defense policies are designed to protect wealth. Bill Gates, Sr. explains, "The government that protects their business activities...that's what creates capital and enables net worth to increase."

(4) The great wealth of the rich stimulates the economy.

Low-income earners have a higher "Marginal Propensity to Consume," which means that they spend a greater percentage of their overall income on consumption. High-income earners, on the other hand, will save more. The very rich in our country have put much of their money into mansions, yachts, jewels, and art.

An analysis by the Congressional Budget Service ranked 11 strategies to create jobs and stimulate the economy. Cutting taxes for the rich was ranked lowest.

The top 500 non-financial companies are currently holding $2 trillion in cash that could be used to create jobs and stimulate new business.

(5) Large incomes provide incentive for success.

Some hedge fund managers 'earned' enough money in one year to pay the salaries of every police officer, firefighter, and public school teacher in Chicago. A system that allows one man to divert the salaries of 50,000 public workers to his own pockets has gone well beyond "incentive-based."

Reputable studies show that life expectancy and 'happiness' increase very little after a certain threshold is reached. That threshold is about $75,000 per family.

(6) The very rich pay it back through taxes.

They pay less than 23% of their incomes in federal income tax. If state and local taxes, social security tax, and excise taxes are included, the lowest-earning half of America pays 24% of their incomes in taxes, almost as much as the richest 1%.

The top tax rate has gone from 90% in 1960, to 70% in 1972, to 50% in 1984 50, to 40% in 1996, to 35% in 2008. But much of billionaires' earnings is subject to only a 15% tax because of a loophole that allows hedge fund income not to be called income.

Furthermore, about 500 people a year renounce their U.S. citizenship and repatriate themselves to countries such as Belize and the Cayman Islands to avoid taxes entirely.

(7) The very rich lost massive parts of their fortunes in the recession.

They lost money, but no more, percentage-wise, than average mid-level earners. Wealth data from the Census Bureau and the Federal Reserve show that the richest households have INCREASED their median incomes relative to other earners since 2006.

(8) "Income mobility" shows that the poor can get rich, and vice versa.

This argument relies on a 2007 U.S. Treasury Department report about income mobility that states "Among those with the very highest incomes in 1996 - the top 1/100 of 1 percent - only 25 percent remained in this group in 2005." But nearly 9 out of 10 of those in the top 1% remained in the top quintile of earners over those ten years. They may have dropped out of the most elite 1% group, but they remained close. The apple doesn't fall far from the tree.

(9) The rich support worthwhile causes.

According to the Chronicle of Philanthropy, the wealthy "give their biggest donations" to colleges, hospitals, and cultural organizations and "rarely make large gifts to social-service groups, grass-roots organizations, or nonprofit groups that focus on the poor or minorities."

And as noted by former Secretary of Labor Robert Reich, hundreds of millions of dollars are being contributed to congressional and state election races. Especially since the Supreme Court ruled against limits on corporate contributions.

(10) Inequality is necessary to sustain a healthy and productive society.

This may be the worst reason of them all. Not only is it not necessary, but it's dangerous: Richard Wilkinson and Kate Pickett have documented the numerous studies that correlate inequality with shorter life expectancies, increased disease and health problems, and even higher murder rates.

The statistics clearly indicate that rates of illness in an unequal society are higher at all levels of income, even for the very wealthy.