In the news and on social media, one often hears phrases such as “tax the rich” and “the rich should pay their fair share.” It seems fair that the wealthy pay most of the taxes because they don’t need all that extra money. Is it good to have a large number of high income and high net worth Americans? How much do the rich pay? Is taxing the rich the answer to our deficit?
Let me start with the last question first; if every American who made over $1 million per year paid 100% of their income in taxes, the IRS would take in about $612 billion. This number represents about one-third of our deficit; the Federal government could not even balance the budget with a 100% tax on high earners. By itself, the “tax the rich” approach is not the answer.
How much do the rich pay? According to an August 2021 report by the Urban-Brookings Tax Policy Center, the top 1% of earners pay 40% of all taxes collected, the next 38% of earners pay 60% of all taxes, and the bottom 61% of American households paid zero taxes in 2020. That means that over 100 million Americans paid no income tax in 2020.
The new proposal by the majority party in Congress this year is to tax the accumulated wealth of Americans. For example, when the stock price of Tesla goes up, Elon Musk becomes wealthier, but does not pay taxes on the growth because he has not sold the stock. Accordingly, when your 401K goes up in value, the IRS will expect you to send a percentage of this unrealized gain in with your income tax due. Conversely, can you imagine the government sending out large refund checks to millions of Americans when stock prices fall like they did in 2008?
Why is accumulated wealth a good thing for all Americans? Because that is where the bulk of the investment capital comes from to grow existing businesses and start new ones. Without the investment of cash by a handful of Bourbon County residents who had accumulated wealth, we would not have the Sleep Inn. Some of our large businesses like Ward-Kraft, Extrusions, and Peerless would not have had the capital to expand and diversify their product offerings as they have done in recent years. Noble Health would not be in a position to reopen our hospital without the accumulated wealth of the company and its owners. Excess cash by the rich puts the capital in capitalism.
For economic development to occur in Bourbon County, we need people with accumulated wealth to invest in us. Yes, we can apply for grants, and we have. However, sustained economic growth is accomplished by those with accumulated wealth who believe in our communities and want to invest in who we are and what we can be. We over-tax the rich to our peril.