2/24/09

An Expert in Economics Explains Why the Rich Shouldn't Pay More in Taxes

By Grant Lawrence

“The income distribution has to stand.... By trying to alter it with a more progressive income tax, you end up in problematic circumstances. In the current world, there will be people who will move from one tax area to another. I am proud to be an American. But if the tax became too high, as a matter of principle I would not be working this hard.”
Kenneth C. Griffin, who received more than $1 billion last year as chairman of a hedge fund, the Citadel Investment Group.

The economic situation is very confusing to me. President Obama is talking about having the rich pay a greater share in taxes. But I just don't know about that. There are a lot of rich people and a lot of folks in the media telling us that it is not good to have the rich pay more in taxes.

So when I get confused like this I usually take a trip to talk to a big time economist at a major Ivy League university for a little more clarification. Unfortunately, he doesn't give me permission to use his name so I will just call him Dr. Reaganomics.

The good doctor eloquently and passionately explained to me last September, right after the collapse of the economy, all about the "new global economy" and how the rich were too important to fail and needed bailouts. So I figure if anyone could help me understand about taxing the rich, it should be Dr. Reaganomics.

"Oh, it is you again," Dr. Reaganomics looked pained to see me.
"Yes, Hello professor I have a couple of questions for you about taxing the rich," I said.
"OK, but make it quick," last time you took too much time," he said

Dr. Reaganomics, if the top 1% of wage earners have more wealth than the entire lowest 95% of wage-earners, wouldn't it make sense that they should pay their fair share in taxes?" I asked.

"As I previously explained to you, the rich are special," he said.

"They keep the economy moving and everyone benefits. They are not only too big to fail but they are too big to pay too much in taxes. You see if the rich had to pay more in taxes then that would interfere with the money we are giving the banks to bail the rich out of their risky schemes and bad investments. To take more money from the rich would simply defeat the purpose of taking the trillions from tax payers in the bail outs. The rich need their money to invest in hedge funds and various financial instruments so that they can grow richer and thus everyone benefits. It's all very simple." Dr. Reaganomics was smiling as he related the wonders of the new economy.

"Dr. I realize that you are an expert on the economy, but still I don't see how taking money out of the pockets of the rest of the 95% of Americans to bail out the rich helps the economy. If 95% of Americans have a lot less money to spend doesn't that hurt the economy?" I asked.

"The economy is a free market in which the rich must be free to earn as much as the people can give them. This goes beyond economics. This is a question of liberty and freedom. The rich must be at liberty to take your money and pay less than their fair share in taxes because that is the beauty and wonder of capitalism. The capital has to go to the top because it is the rich that invest in hedge funds and risky investment instruments and thus everyone benefits. Who else will be able to risk the capital in these instruments if the rich don't have the money to do it. If we tax the rich more then they will not be able to invest in risky financial instruments to grow their wealth," Dr. Reaganomics said.

I could see that he was clearly getting annoyed with me now.

"But Dr.," I demanded, "isn't it a question of fairness that the rich 1% that have more than 95% of Americans pay a greater share in taxes."

"The economy is all about freedom and fairness is never a question to be considered. When you introduce fairness into the economy then you are going to have a lot of fairness but the rich will be less rich and thus that will hurt everyone. Again the whole idea of the "new economy" is to allow the rich to get richer so we cannot tax them more or expect them to take losses on their grand investments. It would interfere with the freedom of the rich to get richer. After all, you idiot, they are rich and if they weren't rich then who would the economy serve?" Dr. Reaganomics was clearly angry now.

"Isn't the economy supposed to serve everyone?" I asked.

"Again you are hopelessly lost in fairness and serving everyone. This is the talk of Democrats at election time but it should never be considered when talking about the taxes and the economy. It is all about freedom, my simple friend. The freedom of the rich to risk the world's wealth and to gain the rewards so that everyone benefits. Unfortunately, as I stated, when we tax the rich more they can't take as many risks," he said emphatically.

"But Dr. wouldn't that be a good thing. If the rich had a little less money and were not free to take such wild risks then the people would not be bailing out the Wall Street and the banks?" I puzzled.

"You are missing the point of our new global economy and unfortunately for you, I must go now. But I will repeat so that you finally understand that the rich must be free to take fantastic risks on Wall Street. If the people have money they do things like buy groceries, pay for housing, buy cars, buy clothes, send their kids to college, and all of the little things that will not create vast fortunes in this new global economy. The rich have to be protected so that they have the money to invest in risky investment instruments. When they grow their vast fortunes then we all benefit. That is why we can't tax the rich any more than we do now," he said.

So I said to goodbye to Dr. Reaganomics and headed out the door.

I was now confident that an expert had the right idea about taxing the rich. Sure some of what he said didn't seem to make much sense. But I do know that I want everyone to benefit and if bailing out the rich and not having them pay their fair share in taxes will help everyone then I am all for it. I am just not sure how that works, but fortunately we have experts like Dr. Reaganomics that know how it all works.

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