It sounds fair. To create more equality in the country you should just raise taxes on the wealthy and spend the money on government programs to help the less economically advantaged. You could make the lives of millions of Americans better. Besides, the rich can easily afford it!
The inconvenient truth is that being able to afford a tax increase and actually paying it are two different things. The truth is that wealthy people don’t have to pay taxes. Warren Buffet has accumulated billions of dollars in stock that he has never paid tax on because he has never sold it. He never will pay tax on it because he is giving most of it to charity.
The rich don’t do anything illegal like not declaring income. They just find ways to shelter their income from taxes. They can hold off on selling stock so they don’t incur capital gains. They can invest in partnerships that use depreciation to shelter income. They can invest in gold, property, and other assets that don’t provide taxable income. They can invest in state and municipal bonds whose income is exempt from federal taxes.
When John Kennedy, Ronald Reagan, and George Bush cut marginal tax rates, government revenue from the wealthy increased. When marginal tax rates rise, government tax revenues will decrease. On top of that, economic activity slows. It gets worse, state tax revenue will also fall as state tax revenue is based on income taxed by the federal government.
When politicians start spending the money they expect from increased tax rates, the result is high deficits. Increasing Interest payments decreases the amount of money available in future years to support federal spending programs. When the deficit gets too large, like now, the government can’t borrow enough money to cover the deficit so they resort to printing money. (The FED calls it quantitative easing!)
When the government prints money and the economy doesn’t grow, it eventually causes inflation. Food, energy, and raw material prices will be the first to rise in price. This is actually a hidden tax on the very people the government is trying to help by raising taxes and increasing spending in the first place. Each dollar buys less. People on fixed incomes like pensions and social security, people with bonds and savings accounts, people who can’t get raises to cover higher prices will pay the hidden tax.
The wealthy don’t typically pay this hidden tax. They own assets that will increase in value and generate increased income as inflation increases. For example, homeowners with 4% mortgages will pay their loans back with depreciated dollars as the value of their homes increases. Poorer people who have to rent will pay higher and higher rents each year. The rich get richer and the poor get poorer.
That is the inconvenient truth about raising marginal tax rates on the wealthy. What the government should do is set the marginal tax rate where it generates the most revenue for the government. The government could also generate more tax revenue from a consumption tax, but that would have to apply to all tax payers. A consumption tax would generate more income from the wealthy as they have more money to spend. Just increasing marginal tax rates on the wealthy is actually unfair and will only widen the wealth discrepancy between rich and poor.
The government running high deficits is bad if you want to fight global warming. The cost of capital in the private sector will get very high as government borrowing squeezes out private investment. Government money for investment in green energy technology will be scarce.
China is currently the leader in developing clean energy systems. They can do this because of their very strong economy. We should learn from their example.