Raising Taxes on Millionaires Hurts the Economy

by on August 29th, 2010
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COMMENTARY | A group of millionaires calling themselves the “Patriotic Millionaires” marched on 13 congressional offices, seven of which sit on the super committee to cut the federal budget $1.2 trillion by next week. They marched to demand that the government raise taxes on those who make more than $1 million per year — in other words, themselves.

This really catches the reader’s eye because it appears that even millionaires are begging to be taxed more. It does not make sense for people who fought and struggled for success to want to give it to a bloated and wasteful government.

Yet things are not always as they appear. If someone was to look at who these millionaires are, that person would find out that the group is comprised of some of the Democrat Party’s biggest supporters. According to CampaignMoney.com, one supporter, Lawrence Benenson, has donated almost $1 million to Democratic Party causes since 2004. This group also has contributed to partisan organizations such as MoveOn.org and ActBlue, which is a Democratic political action committee. What appears to be a concerned group of independent rich people is in fact some of the Democratic Party’s biggest supporters.

Setting that aside for the moment, is what they propose the answer to our fiscal shortcomings?

The group wants to raise taxes on people who make more than $1 million per year with some in the group going further down to the $250,000 per year level. What effect would this have on the economy?

According to Forbes.com, average income earners (about $54,453 per year) spend the majority of their money on living expenses. Almost 85 percent of average income earners’ expense goes toward housing, food, healthcare, savings, and transportation. That leaves only 15 percent of the expenditures to go towards entertainment and disposable spending. This amounts to only about $5,000 to $6,000 a year. Higher income earners (about $132,158 per year) spend only 70 percent of their yearly expenses towards living expense, which leaves nearly 30 percent for disposable spending. Since they make more, that means that this figure runs around $25,000 per year. Simply put, the higher income you have, the more likely are you to reinvest it into the economy by purchasing things. This benefits everyone.

So what does this mean for this debate? It means that when you tax millionaires, you reduce the biggest wells of disposable income we have. This means cars will not be bought, houses will not be built, planes will go unproduced, and charities will suffer. It means fewer jobs in our economy as the engines of purchasing power get burdened by higher taxes. We need to promote wealth and high incomes by making it easier to achieve that lofty goal rather than making it something at which to sneer.

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