Job Creators

I heard an argument over the weekend that has never made sense to me, although I've heard it time and time again.  It goes something like this: "We can't afford to tax job creators, because then they will just stop working as hard, or they will find loopholes and other measures to avoid the higher taxation."  The latter claim is ludicrous and defeatist.  It is admitting that because there are dishonest people out there who will evade taxation that we should stop trying to tax them at all.  Try to apply that same logic to any other situation and it will seem ridiculous.  Take a sports example: it is like saying that we can't enforce steroid regulation in major league baseball because players will abuse other dangerous drugs, so we shouldn't enforce drugs at all.  Or, we can't levy heavier penalties for helmet-to-helmet hits in football because players will find another way to play dangerously anyway.  The fact that loopholes exist is an argument for higher taxation, rather than against, because you have a certain amount of illegal and dishonest people diverting tax revenues.  After all of the exceptions and loopholes, the actual tax rate would drop to near what it was intended in the first place.  There is an astounding amount of tax theft occurring in this country - a far greater injustice than any sort of mythical "welfare queen."

I'm not sure I understand the first claim either, that "job creators" will simply stop working if they are taxed at a higher rate.  Pundits scream that higher tax rates "punish success," and would lead to lowered productivity among skilled workers.  Let me try to parse out the logic here.  Within this conservative paradigm, it is understood rich people work hard and deserve the vast wealth they currently control in our favorable tax climate, thus we should continue to promote this brand of success.  If we tax the wealthy at a higher rate, they argue, this removes the incentive to work hard, because high-earning individuals would receive lower returns on their investment and labor.  I've always wondered why someone would take a double loss when presented with only a slight change in tax rates.  To elaborate, if money is the sole incentive (or at least the main one) to pursue profit, and successful individuals desire money, they will continue to work for profit regardless of the marginal tax rate.  Take this simple example: if you earn $10 million a year, and are taxed at the current rate of 35%, you're still clearing $6.5 million a year.  If the federal government makes the move to increase that tax rate to around 40% (as is scheduled to occur in 2013), you're still left with $6 million.  And then people are arguing that the wealthy will voluntarily work less, thus bringing their annual incomes much lower?  If I raise the tax rate on someone, and they prize money, why would they decide to lose money on two fronts?  If these paragons of business are supposed to be our economic saviors, why would they cut and run in the face of some economic "hard"-ship?

Historically, we have a very low tax rate on our top earners.  The top marginal tax rate was as high as 90% until the '60s and did not drop below 70% until 1981.  The same year US GDP growth experienced a sharp drop, followed by a short spike, and another deep decline.  When the marginal tax rate was above 70%, the US economy was flourishing, the middle class was alive and well (not a mythical demographic like today), and GDP growth was steady.  What we have seen borne out in recent history is a slashing of tax rates on high earning individuals with little to no benefit to the rest of Americans.  I believe that America is a democracy, and should tax democratically.  This requires an open conversation about the benefits of taxation without the emotionally driven and factually void arguments of punishing success, or disincentivizing profit.  The fact of the matter is that the wealthier you are, the greater benefit you derive from the federal government, whether this be in better education systems, better public health and safety, nicer transportation and infrastructure near your home, or countless other externalities the private sector saddles the federal government with.  The true job creators are the consuming and the laboring class. Do not let the vanity of the rich fool you, they aren't John Galts.