Soaking the Super Rich
Democrats are considering a new tax which will target the super rich. My latest column for The Week explains why this is a bad idea.
There's gathering interest on the Democratic side in a new extra-top rate on very-high-income people. It's fine (they think) to whack the over-$200,000 crowd with a 39.6 percent rate. But something much more Draconian is required for the top 0.1 percent, the people who really throve during the Bush years.
For now, this talk is empty. Republicans will score big gains in November. Even if Republicans lack the clout in the next Congress to force renewal of all the Bush tax cuts, there’s no way will they tolerate the creation of a hefty new super tax bracket.
But the emergence of a political idea within one of the big parties is always significant, whether that party holds power or not. Sooner or later, today's "outs" become tomorrow's "ins." Ideas that sound outrageous now may edge their way into the debate if conditions get sufficiently desperate. Given the horrific deficits facing the U.S. Treasury, any idea that promises to raise revenue bears watching.
So it’s worth thinking about why an ultra-high top rate of income tax for ultra-big earners remains an ultra-terrible idea.
The short answer is: We've tried it before. In the 1970s, the United States counted almost a dozen tax brackets, reaching all the way to 50 percent. Faced with the loss of half their next dollar of income, high earners deployed amazing ingenuity to move money out of the taxman's reach. They invested in tax shelters to generate fictitious losses, concocted schemes to redesignate income as lower-taxed capital gains.
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