Atlas Should Shrug at Millionaires’ Surtax Proposal: View
Class warfare leads nowhere. Taxes must be a shared burden. Singling out one group or another does nothing to repair the social fabric. It’s for this reason that we question the Democrats’ latest idea of a millionaires’ surtax to pay for President Barack Obama’s jobs plan, particularly because it was presented in isolation.
But we also object to misinformation, and there have been assertions associated with taxing the well-off that bear scrutiny -- notably that taxing them will cost jobs.
It isn’t true. Don’t take our word for it; we know this is so because of the work of Republican economists, who say little evidence exists that increased income-tax rates dampen hiring. If anything, the statistics point in the other direction: When taxes have risen, so have the number of jobs.
Let’s back up. Senate Majority Leader Harry Reid, a Nevada Democrat, on Oct. 5 proposed a 5 percent surtax on anyone whose income, whether earned or from investments, exceeds $1 million. (The top marginal tax rate is currently 35 percent, and capital gains are subject to a 15 percent levy.) The proposal would generate $450 billion, enough to cover the cost of Obama’s jobs package. Democrats challenged Republicans, who generally oppose tax increases, to block the plan, knowing that recent polls show most voters, Republican-leaning ones included, favor higher taxes on the wealthy.
We’ll skip the partisan politics propelling the surtax idea, and let others judge whether it has any chance of becoming law, and move to the evidence behind the policy arguments. As Bloomberg News has , experts including Joel B. Slemrod, a University of Michigan professor who was senior tax economist for Ronald Reagan’s Council of Economic Advisers, say the data don’t back up assertions that tax increases on the affluent thwart growth and jobs.
Look what happened under President Bill Clinton, when the top marginal tax rate was raised to 39.6 percent from 31 percent. Almost 23 million jobs were created, versus the 1.1 million new jobs under George W. Bush’s lower-tax years. Even more compelling: During the golden age of growth in the 1950s, the top tax rate was as high as 91 percent.
Then there is the argument that raising taxes on the rich will damage the small-business owners, many of whom pass their enterprise profits through to their personal income, where it’s taxed. By raising the top rate, the argument goes, entrepreneurs will have less profit with which to expand and hire.
Not really. The No. 1 reason that small-business owners say they’re not hiring is lack of consumer demand, not the burden of taxes. Moreover, a U.S. Treasury Department study of 2007 tax returns, released in August, concluded that only 8 percent of income covered by the top two tax brackets (33 and 35 percent) derived from small-business profits. More than half of small-business earnings were reported by taxpayers in lower brackets, the analysis found.
The proposition that tax cuts are always a net-plus for the economy is equally iffy. Cuts that aren’t paid for, but instead add to a large budget shortfall that must be financed, can stifle economic growth, says Martin A. Sullivan, a former Treasury Department tax economist who is now an analyst for Tax Notes, a trade publication.
Although a higher levy on millionaires won’t hurt job growth, it’s worth noting that there are taxation strategies that can promote it. We believe that job creation can be spurred by reducing payroll or income taxes on the poor and middle class, who will spend the money on food, clothing and other necessities. A Congressional Budget Office ranking found that cutting taxes for low- and middle-income families was more than twice as powerful in stimulating immediate demand as tax cuts for the wealthy.
As Obama said yesterday, “Our economy really needs a jolt right now.” September’s employment numbers, to be released today, will probably underscore that sentiment. That jolt, however, shouldn’t ignite class warfare. Yes, the money has to come from somewhere. But we believe that “somewhere” should include the middle class as well as the most fortunate among us. The road to recovery depends on spreading the benefits and the sacrifices equitably.
To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at email@example.com.