Why do people think millionaires pay less? One cause of confusion is that stock dividends and capital gains are taxed at a maximum of 15 percent, while regular income in their bracket is taxed at a maximum of 35 percent. The rich often earn more dividend and capital gains income than regular income, so it’s tempting to wrongly conclude, as Warren Buffet has, that millionaires “wouldn’t mind being told to pay more in taxes.” But dividends are paid out of corporate profits that have already been taxed. So Buffet’s equity earnings are doubly taxed: He pays 35 percent at the corporate level and 15 percent on his own return.
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4. Millionaires share the same political beliefs.
That might have been true in pre-revolutionary France, where the nobility was exempt from most taxation (and why so many were subject to a brief meeting with Dr. Guillotin’s lethal invention). But it is certainly not true in 21st-century America, where political opinions among the rich are just as diverse as they are among the less well-off.
Just consider George Soros and the Koch brothers. They are listed high on the Forbes 400 list, but Soros funds Democratic campaigns, while the Koches helped foment the tea party revolution. Income can’t be used to predict political opinion. In 2008, for example, Obama won the votes of 60 percent of those with a family income under $50,000 and 52 percent of those earning more than than $200,000. McCain carried the middle class.
In America, millionaires have always had the freedom to disagree — even in the White House. Franklin Roosevelt, called one of the 10 richest presidents by Forbes in 2010, was denounced as a traitor to his class for instituting the New Deal. Also on Forbes’s list: famous trust-buster Theodore Roosevelt and John F. Kennedy, who proposed a “War on Poverty” days before he was assassinated.
5. Obama’s “millionaires’ tax” won’t seriously limit investment.
That’s the line of reasoning that the administration is using. On Monday, Treasury Secretary Timothy Geithner told reporters that the president’s plan wouldn’t hurt growth. “I am very confident that the modest changes we’re suggesting in terms of revenues . . . would make the economy stronger in the long term, not weaker in the long term,” he said.
Geithner’s confidence is somewhat misplaced. According to a 2001 congressional study that confirmed a basic tenet of macroeconomics, “each $1 of marginal tax rate cuts would save the private economy at least $1.25 as deadweight losses fall and economic efficiency increases.” Taxes distort investment decisions. Why throw money into productive assets — corporate securities, a rental property or new employees for a small business — if the income they generate will be taxed away?
Taxes on the rich are taxes on people who create jobs. And jobs are an unalloyed good thing for an economy. Excessively taxing the capital that makes the economy go is poor public policy. And we have a recent example of how the opposite works well: Unemployment declined by a third in the four years after the Bush tax cuts were fully implemented in 2003, dropping to 4.2 percent from 6.2 percent. Meanwhile, federal revenue increased 44 percent in those years. If these tax cuts put people to work and generated money for the government, shouldn’t Obama consider the possibility that tax increases should be avoided?
John Steele Gordon is the author of “An Empire of Wealth: The Epic History of American Economic Power.”
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