Economy

The wealthy deficit

When it comes to tax cuts for the wealthy, Republicans, Libertarians, and Democrats in the working class have many reasons to come together. Cuts don’t make financial sense, and the affluent already prosper at our expense. Perhaps enough is enough?


The Senate Republicans’ proposed bill to repeal and replace the Affordable Care Act includes a $1 trillion tax cut for upper income Americans. Whether you agree or disagree with the overall effort, and regardless of your political persuasion and income level, a tax cut should bother you for a multitude of reasons.

1. The effective tax rate (accounting for deductions, credits, and exemptions) paid by wealthy Americans is often the same or lower than that of average Americans. Out of a sense of fairness, the tax burden on the wealthy should not be further reduced.

2. A significant portion of our tax revenue pays for services that make life tolerable—not grand—for the less fortunate. Research shows poverty is not a choice or a product of indolence. Therefore, those more financially fortunate have a moral responsibility to share our resources; those who have more should pay more. “To whom much is given, much will be required.” (Luke 12:48)

3. Our national debt is in excess of $19 trillion, and our annual revenue is $0.5 billion less than our expenditures (i.e., we are running at a deficit). During times of economic growth, our fiscal policy should seek to reduce the deficit and debt to ensure future stability. Tax cuts at any level make the debt and deficit worse.

4. Related to items 2 and 3, using funds to pay for those in need benefits the country financially. For example, nonpartisan analysis shows that, for every dollar invested in food stamps, $1.73 is returned to the economy. Thus, tax cuts that reduce support of the impoverished have a compound effect. We fail to meet a moral obligation, and we hurt ourselves economically.

5. We remain engaged in a war with no end in sight. As long as we continue to make a significant expenditure for defense, we should not be reducing our government’s income from taxes.

There’s at least one more reason tax cuts for the affluent should bother people: wealthier segments of our society consume more of our national resources on a per-capita basis. So, they should pay more in taxes to account for their consumption.

Generally speaking, the higher your income, the more you travel, the bigger your home, the more luxuries you demand, and the more resources your business requires. All of that requires a greater investment in infrastructure (runways, railways, roads); a greater demand for government services (international agreements, protection at home and abroad); and a greater demand on our natural resources (oil, gas, lumber, coal).

It’s true many aspects of those activities result in jobs and income that would not otherwise exist. But two other points illustrate why wealthy people simply working and enjoying life is insufficient to cover their consumption.

First, there are no free lunches in economics. Even if wealthy business people produce something of value and generate profit, they will have used up—and wasted—some of America’s natural resources in the process. Further, if their efforts fail, our bankruptcy and incorporation laws will let them consume resources at a significantly reduced cost. Thus, the wealthy should pay more in taxes to cover lost resources and the protections that favorable laws afford them. Imagine for a moment how nice it would be to have a safety net that insulates you from bad decisions.

Second, the wealth gap in our country is at a historically high level. This suggests that, in the aggregate, the wealthy are keeping a greater fraction of the fruits of their labor, rather than reinvesting in the country that provides the resources making their wealth possible.

There is some truth to the Republican criticism that our welfare systems need reforming or repairing. We should get started on that right away so that we spend less money more productively. However, that is a topic for another day and a red herring for this discussion. The point here is that wealth is not a right but a benefit one receives from the fortunate coincidence of hard work and good luck.

The guiding elements at the root of the great American experiment are “to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity.” Counter to what many would claim, the wealthy tend to demand more from our country and leverage their assets to ensure their resource demands are met. This is good for their welfare and liberty, but the subject of the Constitution is we.

Now is not the time to reduce taxes for those who can afford to pay. The wealthiest Americans owe our nation the most. Cutting their taxes doesn’t support Democrat, Republican, or Libertarian objectives. It is simply wrong.