Occupy Wall Street: Taxes

Although the Occupy Wall Street movement hasn’t made any official statements on taxes, I think it’s pretty safe to assume they would support higher tax levels on the rich.

With the huge tax drama playing out in Congress, it seems inconceivable that the top federal income tax bracket was 50% as recently as 1980.  And in the “good old days” of the 1950s? Over 90%.  Hard to believe, but after a certain level of income, $9 out of every $10 you earned would go to Uncle Sam.  And so the argument goes, if we want to encourage hard work, why “punish” top earners with such a heavy tax burden?

But that was 90% — a far cry from the not-even-40% proposal that caused Fox News to make like the world was ending.

I believe this fearmongering is pure silliness if not downright irresponsible.  Here’s why:

Nobody likes higher taxes, but there’s no way a 4 percentage point increase in the highest marginal tax rate induces large-scale economic catastrophe.

Let’s say I’m a small business owner (Full disclosure: I am) who wants to grow my business above and beyond the $250,000 mark.  Every $100 after tax I earn over that today would net me $96 if the tax rate was raised tomorrow.  I’m still $96 better off than I was!

Obviously there is a point of diminishing returns, but I think it’s crazy to say business will suddenly grind to a halt if we ask high earners to pay a small percentage more.

Side Note: this ignores non-financial motivation that I would argue is really important too.  Intrinsic motivators like independence, mastery, building something valuable, or simply helping people clearly play a role in business decisions.  Consider Norway, where taxes are sky high, yet they have more entrepreneurs per capita than we do.  An attractive tax environment can encourage business growth, but let’s not pretend it’s the  only factor.

Class Warfare?

Occupy Wall Street claims to represent the bottom 99% of America, who they feel are grossly underrepresented.  Here’s the thing: they top 1% definitely have it good, as the data will attest, but they only have 1% of the votes.  If your representative is catering too much to the elite at the expense of the 99%, it seems like it would be pretty easy to find majority support to fire him.

Are the rich paying their “fair share”? Are the poor?

  • The top 1% of tax payers pay 38% of all federal income tax.
  • The top 10% account for 70% of all income tax receipts.
  • The bottom 47% pay no federal income tax.

Shows all taxes, incl. federal, state, local, sales, property, etc.

On the flip side of the tax debate is how the money gets used.  According to a recent poll, Americans believe $0.51 of every tax dollar is wasted.  Congress doesn’t just have an ugly budget problem, they have a huge perception problem.  Perception is reality, and the perception is that they are incredibly poor stewards of our hard-earned dollars.

Occupy Wall Street has some legitimate beef, but they have a perception problem too.  Even as they claim to be the 99%, they’re being viewed as an ultra-liberal fringe group.  Let’s be real: most of the 99% are too busy working to go camp out and protest.

Will Occupy Wall Street be dismissed as a bunch of vocal hippies with no lasting influence on the national discourse?  Or will they list some concrete goals and gain more centrist support?

Homer’s flat tax proposal:

The debt crisis explained, with a healthy dose of f-bombs:

3 thoughts on “Occupy Wall Street: Taxes

  1. There’s been a lot of talk about “class warfare,” but I think the ubiquitous class structure labels (lower, middle, upper) are losing their usefulness (especially considering the incredible shrinking middle class) for helping us understand our economic differences and conflicts. I suggest we try these class categories: Dependent, Working, Rich, Crazy Rich. Right now the Crazy Rich are causing a lot of damage to our economy. I explain further at http://www.ragingwisdom.com/?p=79

  2. Well-written Nick. Too bad you can’t get a spot on Fox News to show them some facts! I tend to go with Jeff Sachs’ thoughts that yes we need to raise taxes, but spend it on human capital and infrastructure.

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