Column: The rich and you

Conservatives and liberals both seek a more prosperous American society for all. They simply have different ideas of how to go about achieving it.

In a column entitled “I love the rich” a couple weeks ago, I argued that letting the upper class keep more of their wealth is advantageous for the rest of us. The rich employ a very large number of people while providing capital for average folks to take out loans and start businesses.

Furthermore, they pay an immensely high percentage of the taxes our government takes in, meaning that we already live in a society financed chiefly by the rich.

But my column prompted one guest editorial that brought up a couple common attacks on the rich in America. Staff research associate Frederic E. Vincent alleged in Tuesday’s Aggie that, “the top 1 percent of people holds more than a third of the wealth in the United States, so it’s not surprising that they pay a similar percentage of what the IRS takes in.”

I entirely agree. The rich have a lot of wealth, which means they pay a lot in taxes, which means, precisely as I wrote, that the majority of government services are financed by those who can afford it. Sounds like a good society to me. What, exactly, the problem is that demands the rich pay far higher taxes remains unclear.

A stronger argument comes when Mr. Vincent quotes the famous liberal economist Joseph Stiglitz in a recent article in Vanity Fair. Putting aside the amusing irony of Mr. Stiglitz attacking the rich in a magazine brimming with outrageously-priced fashion catered to those with far higher tastes than I could ever afford, the article claims that incomes for the middle class have fallen over the last decade, while those of the rich have increased by 18 percent.

However, Mr. Stiglitz does not source his figures, nor does he elaborate any further on this key point. Worse, his numbers are absolutely naked of context. Are we talking about inflation-adjusted figures or not? Is this for households or individuals? When we define income, what forms of compensation do we include? Health benefits, retirement funds and capital gains, or just dollars and cents?

I don’t mean to bore anyone with exceedingly dry economics, but if all of these details are left out, the statistic becomes virtually worthless. And if we cannot establish that the poor are actually getting poorer, rather than the rich getting richer with no harm done to the poor, then so much of the rest of the far left position on tax rates collapses.

After a brief e-mail correspondence on the subject, lead budget analyst Brian Riedl of The Heritage Foundation, a conservative think tank in Washington D.C., directed me towards a paper he wrote in 2007 entitled “10 Myths About the Bush Tax Cuts.” As anyone with at least a remote interest in politics knows, the Bush tax cuts are often scorched for allegedly only benefiting the rich. Quite simply, this is not so.

“[F]rom 2000 to 2004, the share of all individual income taxes paid by the bottom 40 percent dropped from 0 percent to -4 percent, meaning that the average family in those quintiles received a subsidy from the IRS,” Riedl wrote. “By contrast, the share paid by the top quintile of households (by income) increased from 81 percent to 85 percent.”

Yes, you read that right. Not only did the Bush tax cuts increase the tax burden carried by the rich, but the bottom 40 percent actually got money back from the IRS. Riedl’s source? The non-partisan Congressional Budget Office.

To expand the picture dramatically, let’s take a look at a September 2008 article in the Wall Street Journal written by economists Arthur Laffer and Stephen Moore to rebut then-candidate Obama’s attacks on the wealthy.

“[I]n 1981, when the highest tax rate on the rich was 70 percent and the top capital gains tax rate was close to 45 percent, the richest 1 percent of Americans paid 17 percent of total income taxes,” the economists wrote. “In 2005, with a top income tax rate of 35 percent and capital gains at 15 percent, the richest 1 percent of Americans paid 39 percent.”

Once again, lower taxes for the rich meant that they shouldered a far higher percentage of the burden, an enormous boon to the rest of us.

In their determined promotion of class warfare, the hard left often paints a false image of the role the prosperous among us play. If we don’t better understand that the rich do so much more for America when we let them keep their money, the economy will continue to struggle, and so will the rest of us.

And that’s something I’m simply too poor to afford.

E-mail ROB OLSON at rwolson@ucdavis.edu.