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While increasing the taxes on the rich may be popular politically, the result is that their share of tax revenue is reduced by alternative investment

Tax the Rich



Increasing taxes on the rich has been a goal of populist presidents since FDR. The Obama administration has pledged to increase the taxes on those making over $250,000 to fund increased social programs and a middle class tax cut.

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However in the past, increasing taxes on the rich has had just the opposite effect. In 1932, the top individual tax rate was increased from 25% to 63% and eventually rose to 79% by 1937. During that same period, the overall share of taxes paid by those with incomes over $100,000 fell from 50% to 27% of all taxes. Roosevelt’s desire to blame the wealthy investors for the continuing Great Depression, rather than his own economic policies, actually reduced the tax contribution of the very wealthy. This occurs because politicians intent upon increased taxes on the rich neglect the fact that the rich, unlike the rest of us, have alternative ways of legitimately investing their money, such as municipal bonds that do not result in taxable income, instead of investing in companies that expand to create jobs. While populist administrations want to make sure that the rich pay their fair share, actually the rich already pay for most of the cost of government. In 2005, the top 5% of taxpayers, those with incomes above $150,000, paid 60% of all income taxes paid. Before the Reagan tax reductions of the 1980, that same group paid less than 40%. While increasing the taxes on the rich may be popular politically, the result is that their share of tax revenue is reduced by alternative investment. This forces the middle class to pay a larger share of the tax burden. This is exactly the opposite result of what those trying to get the rich to pay their fair share would like you to believe.


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David A. Nace -- Bio and Archives

David Nace was raised in rural western Pennsylvania. Graduated from Penn State University with an Undergraduate degree in Engineering and a Masters degree in Business Administration. He has managed and co-owned a construction company since 1989. Dave is active in the Associated Builders and Contractors organization on the local and national level, and is able to demonstrate the consequences of legislation and policies in concise and easily understood articles.


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