Myths about the rich, the economy and taxes
I was a financial advisor for nearly twenty years. The two things I learned about the wealthy is 1. They have already made their money and 2. The government isn't going to get a whole lot more of it.
The first truth means that the rich don't need to invest in the productive, risk-taking economy, unless that risk pays off for them. When the government taxes them too much, they simply remove those investments from businesses that create jobs and park them in tax-free or tax deferred investments. We once knew this back in the unproductive 1970's but apparently we have forgotten. We are suffering now because of our ignorance. The direct result of the wealthy removing assets from risk-taking investments is that those businesses deprived of capital either don't hire new people or lay people off. As Mitt Romney stated in the debate last Wednesday, "the rich are going to be just fine no matter who is president." But the economy will not. Under President Obama, the rich have profited greatly due to the fed's monetary policy which has driven interest rates down and the stock market up. The rich survive by adjusting their investing behavior.
The second truth means that President Obama's proposed tax increases will not cause any increase in revenue to the treasury and will create net job losses. What Obama does not seem to understand is that the US tax code is a cooperative rather than a punitive code. It lives on incentives and disincentives. For example, our having the highest corporate tax rate in the world has resulted in corporate profits not being realized and the treasury failing to receive revenue estimated to be above $50 billion annually. When Obama said he wanted to "lower the corporate tax rate" at the debate I nearly leaped out of my chair. He has resisted it for four years.
One of the biggest myths proffered by Democrats is "Bill Clinton raised taxes and balanced the budget." This is bunk. First, Clinton lowered the capital gains tax by 20%. Second, he compromised with Republicans sending signals that his big spending ways, including healthcare reform and welfare spending, were behind him. Thirdly, Clinton was the beneficiary of the biggest peace dividend in history as Eastern European markets opened up after the fall of the Berlin Wall. US consumer brands exploded into these markets and the stock market soared, tripling under his presidency. Huge capital gains were harvested balancing the budget. Yes, Clinton did raise income tax rates, but he lowered the most important rate, capital gains, which balanced the budget.
Which brings us back to the rich. The cold, hard truth is, you will never help America by punishing the rich. Politicians can only give them two choices. Either plow their money into the productive, job creating economy and watch money flow into the treasury, or park it on the sidelines, defer income and collect it from tax-free bonds. There is no third choice. This is what Mitt Romney understands and President Obama does not. Let's hope the voting public will not be duped by senseless rhetoric about taxing "millionaires and billionaires" in order to solve our problems. It won't.
Jay Haug is the author of Beyond the Flaming Sword available from Amazon.com. You may reach him at firstname.lastname@example.org