Tax Rates for the Wealthy

The expiration of the tax cuts is in the news since they are set to expire at the end of the year.  The Obama administration has made it clear that they will not extend the tax cuts for the "wealthy".  Of course, this use of the term wealthy is completely inaccurate.  The tax cuts are referring to income taxes.  It has little to do with wealth.  There may be a correlation, but it is not a wealth tax.

You could have somebody earning $500,000 per year and their tax rate would go up with an increase in the highest income tax rate.  Now you would think that someone making that much money is wealthy, but it is possible that the person spends every dollar they make and therefore has little wealth.

It is also possible for someone who makes $50,000 per year, yet has $1,000,000 in assets.  This person could be considered wealthy, but they would be part of the middle class tax cuts.

This move by the Obama administration is just more class warfare to try to appeal to the voters.  It will work with the typical leftist, but it doesn't mean much to most others.  Some see right through the class warfare and it serves to hurt Obama even more.

But regardless of all of this, the extra money collected by the government (if there is any extra at all) will be little compared to the big picture.  Obama just said that he wants to spend another 50 billion dollars on roads and runways.  Even if you calculate the extra taxes collected on a static basis (which assumes that human behavior never changes), an increase in the highest tax rate will translate to a drop of water in a pool.

The government is running a deficit of about 1.5 trillion dollars per year.  This would have been unthinkable even 3 years ago.  The tax rates mean little at this point.  It just tells us how much more or less the government will inflate.  Either way, spending keeps going up and it is completely out of control.  No tax hike in the world could possibly balance the budget unless there is a decrease in spending.

Keep your eye on the ball.  The ball is government spending, not tax rates.