OPINION: Tax The Rich At The Expense Of Jobs And Tax Revenue

By  //  November 21, 2012

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BREVARD COUNTY • COCOA, FLORIDA — As I read articles in my financial trade publications, see media reports of multiple companies laying off employees, and talk to clients and local business owners, what I see, read and hear leads me to ask a simple question: “Who will really end up with less income if taxes are increased on the wealthy?” Remember the “luxury tax” on expensive boats and cars?    Remember what happened to employees of companies such as SeaRay?

My guess is that anyone who earns income providing a product or service to those that Obama considers “the wealthy” will find, even though their own taxes may go down, their income, as “the wealthy” prioritize and cut back on spending for those products and services, will go down even more, leaving the wealthy to continue to enjoy their pre-higher-tax lifestyle while those who depend on them for a paycheck see their net after tax income actually decline.

Reading an article in which it is reported that the top 2% earners in this country are purported not to be job creators, I had a thought that I hadn’t read elsewhere based on the “long tail” theory.

According To This Article:

  • Many of the top 2 percent by income are two-earner professional households.
  • Less than 1 percent of the U.S. population have annual income more than $1 million.
  • The proposed tax increase on “the wealthy” would raise taxes for 1.3 percent of U.S. households (about 1.4 million) by an average $35,000
  • The top 5 percent include managers, financial/medical/legal professionals (my guess is many pay someone else to maintain their yard, pool, home, etc)

Now, I’m not a licensed economist, but here are some of my random thoughts on the potentially un-discussed consequences of a tax increase on “the wealthy”:

  1. Many of those high-income two-earner households probably pay someone to do certain taxes. The cost of most household/personal services is not tax deductible–but the income being earned by the service provider is taxable.
  2. An estimated 1.5 million households would be hit with an estimated average $35,000 in new taxes.
  3. Most wealthy people I know will cut their expenses to preserve their wealth–for example, by increasing the time between when they have house cleaned, hair cut, lawn mowed, car detailed, etc.  Since most wealthy probably have all the “stuff” they really need, they may put off replacing their car by a year, or keeping that old yacht another couple years. They may decide their closet is full enough, or they’ve attended enough charity functions for the year. Maybe they will stop going out to dinner and invite friends to their home–where they might do the cooking themselves or could hire a caterer to do the work for less than eating at a restaurant.

    The extra tax burden on the “wealthy” will impact their discretionary spending and adversely affect the demand for goods and services that provide jobs. (Shutterstock Image)

  4. If to “pay for” the extra $35,000 a year in taxes, they cut spending by $35,000 a year, that would be around $50 billion of taxable income from all of the above services and goods that might suddenly disappear.
  5. That is now money that those who used to earn and spend that $50 billion don’t pay income or sales taxes on. That is $50 billion, that had it been spent by those former “workers,” would in the process create more jobs for others, and down the line.

A good example is Brevard County. About 8,000 jobs were lost from KSC layoffs, but estimates are that 12,000 – 5,000 additional “jobs” could be lost, as those who earned a living providing services to those 8,000 lose both customers, and income.

The argument about “job creators” misses an important point. Many of those $200,000 and up income earners may not create jobs in the “employee” sense, but they still provide “jobs” and income to millions of self-employed Americas who are part of what Obama calls “the working class.”

Could it be that the tax increase on “the wealthy” ultimately results in so much lost taxable income “down the line” that the government actually ends up collecting even less in taxes, and driving even more “working Americans” into foreclosure and bankruptcy, than letting the wealthy keep lower tax rates, but “spread the wealth” in a more productive and tax-generating way?

ABOUT THE AUTHOR

Ilene Davis, a resident of Brevard County since 1971, is a Certified Financial Planner with a bachelors degree in Mathematics from the University of Michigan, a bachelors degree in Accounting from Rollins College, and a Masters in Business Administration from Webster University.  Ms. Davis became a stockbroker in 1982, earned her designation as a Certified Financial Planner in 1984, and with a desire to serve clients more on her own terms, opened her own financial consultant office in Cocoa Village in 1986.   She is committed to helping each client create their own “Financial Freedom Fund,” and believes strongly in free market capitalism and a “hand up rather than a hand-out” as the best path to prosperity.


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2 Comments on "OPINION: Tax The Rich At The Expense Of Jobs And Tax Revenue"

  1. Jay D. Dineen July 24, 2012 at 8:10 am · Reply

    This is a perfect example of why Ilene Davis no longer is in office. To defend tax breaks for the wealthy shows her lack of understanding — and empathy for those who are suffering as a result of the illogical policies that led to the granting of huge tax breaks for the rich to begin with. (FYI: that led to the election of the current president, if you do jot recall.) All we as Americans ask for is fairness. When the secretary pays less in income taxes than the CEO, something is wrong. Whining about how the wealthy provide jobs no longer works when the disparity between the highest incomes and the lowest wage earners continues to widen. It’s simply incredible that someone could defend such lunacy in our society in this day and age.

  2. Jay D. Dineen November 20, 2012 at 2:01 pm · Reply

    Hey Ilene Davis, give it up. You lost the election. The majority of Americans prefer a fair taxation system where everyone, including the wealthy contribute fairly. If the wealthy are such wonderful job creators, where have the jobs been since Bush was in office? Trickle down economics is a prime reason why there is a deficit in the first place. Basic first grade math tells you that no revenue coming in means no revenue in the treasury. Fact — You can’t fight wars with no $ in the treasury. That’s why the president was re-elected. Time for all Americans to pay their fair share.

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