6 Indirect Ways Taxes to the Rich May Hurt You

By David Ning on 19 October 2010 21 comments

With Congress taking their time with the discussion of extending the Bush tax cuts, everyone seems to have stated their opinion on whether high income earners should have their taxes raised. Naturally, as only 3% of all taxpayers qualify for the highest tax bracket, most middle class people are in favor of letting the tax cuts expire only for the highest earners.

On the surface, it doesn't concern them, so everything is A-OK. But does high taxes for high income earners really not matter to the middle class? Here are a few possible ways higher taxes could affect anyone.

High taxes could affect your boss' salary, and how do you think she feels about this? No matter how much anyone makes, higher taxes mean a reduced paycheck. Do you think she will be happier or less satisfied? If she is unhappy, do you think the work place will be a better environment?

Of course, not all bosses will ever let his/her emotions affect the work place, but you know these people are out there!

High taxes definitely affect business owners, and that could mean less perks for employees to offset that dreaded tax bill. For small business owners who make celebration plans like where to go for the Christmas party based on mood, employees are definitely taking a hit.

Don't care about perks? What about your salary? The decision of salary increases often come directly from the top. If business owners are feeling the pinch, she is naturally less likely to feel generous to everyone else. If she is unhappy, you might not get a raise no matter how many times you ask.

High taxes could affect essential services. Everyone's assumption that the rich can afford to pay higher taxes is absolutely right, but they can also afford to work much less than they do now. Go too far with tax rates, and the motivation to work longer hours fade. This potentially means fewer doctors performing surgery, and fewer entrepreneurs coming up with brilliant ideas that improve our way of life, which lead to lower quality of life for everyone.

The economy could suffer. Studies have shown that the top 3% of income earners make up 25% of discretionary spending. If they have less to spend, the United States economy, being a consumer economy, will suffer. Less demand for goods, less money for all businesses, and many more lost jobs.

High-tax states will suffer too. This might sound irrational (and it very well could be), but a few people I know are thinking about moving to another state with a lower tax rate. After all, addresses matter when it comes to our finances. They can afford to pay higher taxes, but because the subject is on the forefront of their minds, any solution to counteract the effects are on the table. And it doesn't stop at the state lines either. Some are even thinking of moving overseas to countries where tax rates are more generous.

Your children could ultimately suffer. As our government goes further into debt and needs more revenue to sustain its "lifestyle," the only way to get money is taking it from businesses and individuals through taxes.

Eventually, businesses and individuals alike will realize that it might be better to move abroad. On a small scale, this has already been happening in the past decade. If this becomes more of a widespread trend, then America could lose its competitiveness and everyone living in it will suffer.


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Guest's picture

"High taxes could affect your boss' salary, and how do you think she feels about this?"

That kind of boss most likely isn't happy about paying even the current level of tax and is likely to "buy" off the gooferment for even lower tax rates.

"High taxes definitely affect business owners, and that could mean less perks for employees to offset that dreaded tax bill."

With lower tax rates most businesses may pocket the savings and pass nothing along to the employee and that may not prevent reduction in perks or staff.

"High taxes could affect essential services."

Low tax rates have done nothing to increase essential services. In fact, currently most communities are cutting essential services included school program, during a time when we need an educated population that may introduce the next big idea.

"The economy could suffer."

That leave the other 75% to pay taxes and live on the reduced pay that they are currently earning.

"High-tax states will suffer too."

I live in a high tax state (New Jersey). With the current low tax rate on the rich has still led to the reduction in essential services and state support of school budgets has meant an increase in taxes for me – at both the local and state level.

Your article needs some more thought. You make a case as to how rescinding the tax cuts would impact everyone but you don't provide a solution. We don't need more jobs in the USA. We need a return to the days when everyone was a business owner and few large companies existed.

Guest's picture

I've read somewhere that most rich people don't actually spend the money they currently save in taxes; They save it instead. So that's not doing anything the help the economy. It's the middle and lower-income earners that go out and buy new TVs with their refund checks.

Guest's picture
L. Bowser

More accurately, they invest it (which is what saving is, be it stocks, bonds or bank accounts.) It is money that is injected back into the economy, presumably to become productive and ultimately creates jobs.

Taxing the rich and giving to the poor takes money from people that know how to create an economic return, and gives it to those who don't. Then we're all aghast when the economy shows no sign of economic returns (as expressed by real GDP growth.)

If your statement was the middle and low-income earners are the ones going out and spending their refund checks to build businesses, I might agree with you. But I'm not even sure that I agree those are the people buying TVs today. More likely, they're using that check to pay off the one they bought 2 years ago (at 30% APR.)

Guest's picture

L Bowsers' Comment

Yes the rich do save and invest. But that doesn't mean that they are creating new economic activity in the US Economy. They could invest in foreign stocks or bonds. Create a new factory or update equipment in an existing factory overseas. They could invest in money center banks or other wall street firms. Any of these activities don't help the US economy in the short run. Also we are keeping these taxes artificially low by selling US debt to China.

In only one way do I agree with not taxing the rich. We should all pay slightly higher taxes to get our deficits in order.

My suggestion is to reduce taxes on the lowest rate currently ten percent, then raise all the other taxes by at least two percent possibly a sliding scale. And why only the four brackets? Also let put reduce federal spending say by a similar two percent. Also redefine capital gains as investment in productive enterprises not hedge funds.

Guest's picture

This is a joke, right?
My ad-blocker must have stripped all the 'smiley faces' after each bullet point....

I highly anticipate the follow-up article: "6 Indirect Ways Increasing Taxes to the Poor and Middle Class Will Help You Sustain Your Lifestyle"

Guest's picture

Clinton raised the taxes of the wealth in 93, and we suffered through
eight years of prosperity.
Budget surpluses, low unemployment.
Bush saved us in 01.
we should stay saved

Andrea Karim's picture

That was such a terrible time - the surplus, the jobs... all of it. May we never return to such conditions. :)

Guest's picture

I know ohhh the horror of it all. I graduated and actually got a job. I went to school and my degree actually meant something. There was still a such thing as the American Dream.

Yes, let's all do our Bush was our savior dance!

Guest's picture

LOL. This post made my entire day. Are you that delusional?

They were given a "break" by the Bush administration. Now that "break" is expiring. It is not a "tax increase". It is simply a return to what they had been paying.

You assume that every additional dollar in tax breaks will be generously showered down on those below them. Silly rabbit.

Guest's picture

Finally an article on WiseBread that makes sense! Everything in this post is 100% accurate. Of course Obama has already raised taxes by passing Obama care. Now Boeing and other companies are forced to make their employees foot a larger portion of the bill.

Just like prosperity trickles down to the little guy, so do taxes. Tax the big guys, and they will either leave or find a way to pass it on to the little guy.

Thank you for posting something political on here that actually makes sense!

Guest's picture

They had tax breaks for eight years. By your logic, the two recessions under Bush should never have happened. But they did. Nothing trickled down.

Guest's picture

I'm sorry, but there's no explanation of how these things may come to pass in the article...well except for the moving overseas explanation, which I find very far fetched.

Sources, please?

Guest's picture

For over 5 decades from the 1930's to the 1980's the top marginal tax rates were 50-91% range. America somehow managed to struggle through it without all the doctors walking off the job and rich people being mean to their employees. I think we can probably find a way as a nation to manage through a 2-3% increase in the top marginal rate to get us back to what people were paying a mere 10 years ago.

Guest's picture

Wait, wait, let me be sure I understand this:

1. I should be worried about higher taxes on the rich because they'll piss off my boss? You're assuming my boss makes more than $250,000, which I must tell you is unlikely.

2. I should be worried about missing the Christmas party? You mean the Christmas party that's been cancelled for two years running because of the economy? Bzzt. "Perks" do no offset taxes. Try again.

3. First, spare me the Randian "We'll all go Galt" lite routine. Second, if people worked a little less, I don't think it would kill anyone. If a few doctors cut their hours, and there's still demand...then more people will move into the field.

4. This one just buried the needle on my BS detector, David. The rich already have plenty and to spare. They buy what they need, and what they want. The extra goes offshore and into tax shelters. You're not trying very hard here, unless just scaring the bejesus out of the ill-informed was the goal.

5. Yes, I'm sure wealthy Manhattanites are just *lining up* to get the hell outta Dodge, because there are so few reasons now to leave. Come off it.

6. My child will suffer if the deficit is not reduced and the debt paid down. That's simply going to *require* higher taxes.

I'm really surprised this post passed whatever WiseBread employs as a smell test, because it stinks of linkbait.

Guest's picture

I'm concerned that if the excise tax is reduced or eliminated that the children of the wealthy won't experience the character building value of work. They'll just become shiftless and drink or take drugs all day. Let's protect them from themselves by raising the excise tax.

Guest's picture

Wisebread-- double check your post scheduling software. I'm pretty sure you guys meant this article for April 1st.

Guest's picture

How is 3% extra on earnings over $250k considered "high taxes"?

Guest's picture

Thanks for this post, I guess I needed a good reason to unsubscribe from your rss feed. This pile of laughable FUD looks like just the ticket.

I should support tax breaks for the wealthy to save the christmas party? Is Scrooge going to take back our christmas goose too?

Guest's picture

What a bizarre post. A money blog should know better than anyone that choices have to be made to balance the budget and reduce the deficit. Where is the comparison to how it will hurt you if the taxes are NOT raised? The presentation of this argument makes it sound like these taxes are a whim. Some of these points are less than trivial.

I had been considering unsubscribing to WiseBread because I get similar information from other blogs/newsfeeds. This nonsensical post just may be the clincher....

Guest's picture

Well, the author must subscribe to the mantra, " lets not let the truth ruin a good story"... or let actual facts lead the mind to a conclusion.
I'll share a piece from well known financial writer Andy Tobias on this topic -

"Would you give me a break? If you make $250,000 ($200,000 single or married-but-gay), your tax won’t go up, and if you make $350,000, it won’t go up on all $350,000, just on the portion above $250,000. And not by a whole lot, either. So we’re not asking you to leave your family to fight for your country in the jungles of Vietnam (and thank you if you already did that), just – because the nation is in a bit of a crisis – to go back to paying taxes more or less as you did under the wonderfully prosperous Clinton/Gore years. And this notion that, as a result, you, the small businessman earning $350,000, or $800,000, or $2.4 million, won’t hire people for your small business because your tax rate goes back to what it used to be is just nuts. If you need people, because business is good, you’ll hire them to make even more money. If you don’t need them, because business sucks, you wouldn’t hire them even if the tax rate were zero.

-Andy Tobias, September 19th 2010, writing in his blog about letting the Bush tax cuts expire ( as Bush himself originally intended them to) in 2011 for people making over $250,000 per year.

Guest's picture

The author is clearly suffering from a case of economic myopia.

The argument that the top 3% are responsible for spending 25% of the nations discretionary spending is often touted to show how the super rich are greasing the economic engine that keeps this country going. However their cheerleaders often forget to mention the flip side that really brings this statistic into perspective.

Flip this over and now consider the fact that the top 1% have about 42% of the nations wealth. That is only the top 1%, if you consider the top 3% we are probably talking near 48% of the nations wealth concentrated in the hands of 3% of the population.

Now the 25% discretionary spending seems downright miserly. You want to know why we are in a debt crisis, it is because the bottom 97% who controls around 52% of the wealth has to spend the remaining 75% to keep our way of life going.

Meanwhile as belts tighten fundamental programs such as education and scientific research are being cut. These cuts dont affect the top 3% as they can readily send their children to the best school money can buy, but what about everyone else? Based on world history, if this trend continues political instability will ensue and the top 3% won't be able to wall themselves off from its effects. Fix it now or fix it later, it will get fixed.