There's something emotionally satisfying about watching a rich person ask for higher taxes for people like him. It feels civic, even noble. TO recent comment by former Utah senator, Massachusetts governor and Republican presidential candidate Mitt Romney fits neatly into this tradition. Faced with the looming fiscal cliff, Romney concludes that entitlement reform is inevitable and that higher taxes on wealthy Americans must be part of the solution.
But don't be fooled. Yes, the status quo is unsustainable and claiming otherwise is reckless. But taxing the rich cannot meaningfully solve our underlying fiscal problems. Worse, pursuing that illusion risks making those problems harder to solve while foreclosing opportunities for the next generation.
Let's start with a basic arithmetic problem that never goes away: High-income households already bear a disproportionate share of the federal income tax burden. The top 1% pay approximately 40% of income tax revenue; the top 10% pay more than two-thirds. And when taxes and other wealth transfers are taken into account, the system has become increasingly progressive over time.
Regardless of what one thinks about fairness, this fact has enormous implications for revenue collection. There simply isn't enough taxable income at the top to fund a government built around large universal benefits for the middle class.
Romney proposes raising revenue by eliminating the cap on payroll taxes, taxing assets more at death, ending like-kind real estate exchanges, limiting state and local tax deductions and closing the preference for book interest. None of these ideas are new. Its effects on income have been studied repeatedly. Even under optimistic assumptions, their combined performance over a decade amounts to only a fraction of the projected deficits. Trillions sound impressive in isolation, but compared to tens of trillions in red ink, they are a rounding error.
There is an even deeper problem with the impulse to “tax the rich.” Taxpayers are assumed to pay the full cost without simply reducing their tax exposure. Taxes change behavior. They alter investment decisions, career choices, and human capital accumulation. They push employers toward retirement rather than another round of hiring.
And higher marginal tax rates at the top don't just affect today's rich; They shape the incentives of tomorrow's entrepreneurs, engineers, doctors and business creators.
This is where the moral stance to the Romney becomes especially worrying. It is easy to say “tax me more” once you are already rich, with wealth already built, diversified and largely insulated. But if such a system had been imposed before, would have reduced the likelihood that so many people would have become rich in the first place.
In other words, the call to tax the rich today makes it harder for young people to get rich tomorrow. Thank you so much.
That matters not because everyone should be a billionaire, but because economic mobility depends on the possibility of enormous success. When the benefits of extraordinary or unique effort, risk-taking, and skill acquisition diminish, fewer people invest in them. The evidence is clear that more progressive tax systems reduce incentives to accumulate human capital and expand businesses in the long term. These costs manifest slowly: in lower productivity, slower growth, and fewer opportunities. but they do appear.
Nor should we assume that new tax revenue would actually be used to reduce deficits. Especially because history suggests otherwise. When income rises, spending tends to rise with it, often more than the increase in taxes. The promise that “this time is different” is commonplace, but has rarely been fulfilled.
The real driver of today's fiscal imbalance remains largely intact: spending on social programs whose costs automatically grow and whose benefits increasingly reach people who are already financially comfortable. Romney is right that the payments should be means-tested for future retirees. But the idea that we can't change benefits for retirees or near-retirees is nonsense. many of them They do not depend on Social Security for their retirement income and receive more than they paid for.
If wealthy Americans really believe they should contribute more, they are free to do so today. The Treasury accepts voluntary payments. That's a much better idea than using your resources to support policies that block a tax environment that prevents younger generations from building wealth in the first place.
The temptation to tax the rich is understandable. It feels fair. It feels painless. It allows us to postpone more difficult conversations. But feelings are not solutions. These taxes will not stabilize government finances and will not restore confidence in the system. Worse still, it risks turning a society that once rewarded ambition into one that silently penalizes it.
Rugy Veronica He is a senior fellow at the Mercatus Center at George Mason University. This article was produced in collaboration with Creators Syndicate.
