Whenever confronted with an issue regarding the current condition of the American economy, the general populous deflect the problem to war spending and wrongful taxation. Admittedly, the war spending is an aspect that I personally believe does contribute to our economic crisis, but taxation? I think not.
When people say “We need to fix taxation”, they mean instead, “Why don’t we just tax the rich more?”
There are two problems with simply raising taxes for the rich, to pay for the public service of the poor: The psychological aspect, and the economic aspect.
The top 10% of America controls 75% percent of it’s wealth; as unfair as that might sound, it is capitalism at its finest. If the top 10% start getting taxed more, their spending is going to decrease. Even though it would barely cut into their income, it is psychology, not reality that actually matters. If the individuals with spending power believe that their money is being taken away, they are going to cut down on spending. Not just incrementally, but drastically as 40+% income tax would carve out the belief that their money is getting taken away, and the only way to flourish is to conserve.
When national spending drops, corporations which deal directly with consumer goods start to struggle, as the individuals who control 75% of the wealth in America aren't buying nearly as much as they used too. If the retail outlets start going bust, so will their respective wholesaler and supplier. Slowly but surely the whole supply chain will start to disintegrate. And who are the millions that work in this supply chain? Lower and Middle class hardworking Americans.
Therefore, in an attempt to close the gap between classes while raising money for the country, taxing the rich more would lead to widespread unemployment and a huge drop in individual spending.
On the contrary, if persons of all incomes were taxed the same, the rich would spend more of their money, and that money would slowly but surely trickle back into the economy. The rich would be inclined to spend more as now they will see that they are being taxed the same percentage as their secretary; so psychologically they will feel that they aren't losing as much money, and will loosen their belts.
Some might argue that a man making $10 million dollars a year taxed at 40% ($6 million remaining) can still live a luxurious life while an individual making $50,000 a year taxed at 40% ($30,000 remaining) will find it extremely challenging to make ends meet. To this I propose that any individual living under the national average income by more than 10% should be tax free. Therefore, anyone earning over $45,000 yearly ($50,000 is the national average -10%) will pay a certain tax, while anyone earning below $45,000 yearly goes tax free.
By utilizing this strategy, everyone is taxed equally, encouraging the 10% to put money back into the economy, which will decrease the gap between the rich and the poor. Furthermore, individuals for whom taxation is not affordable (if they are 10% below the national average or impacted individuals), are exempt from it. This provides a platform for both capitalism and socialism, since equal taxation can be equated to equal opportunity, while people still give back to society and help impacted individuals get back up on their feet.
Admittedly this has many flaws, and is still very simplistic as it is simply to prove a point; that taxing the rich isn't going to close the social gap or even help the poor, but only widen the gap and stifle the economy.
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