Monday, August 15, 2011


So, frustrated with the recent budget deal which is all cuts and no revenue gains, I actually wrote to my elected representatives telling them that they should do something brave and raise taxes on the wealthiest Americans. Unfortunately my Senators are Kyl and McCain, so you know how far *that's* going. Got a response from Kyl (a boilerplate email, which I'll paste below), but nothing so far from McCain. Then today Warren Buffet posts an editorial in the New York Times saying, "tax the rich!" A nice counterpoint to Kyl, I thought. However, Kyl is on the Supercongress and Buffet is not.

Kyl's response:

Dear Dr. Wise:

Thank you for your recent email suggesting that Congress address the deficit crisis by raising taxes on the wealthy.

Our income-tax system is already the most progressive in the world, according to economists from the Organization for Economic Cooperation and Development ("Growing Unequal? Income Distribution and Poverty in OECD Countries," Organization for Economic Cooperation and Development, 2008). The top 10 percent of U.S. taxpayers pay a larger share of the income tax burden than do the top 10 percent in any other industrialized country, including traditionally "high tax" countries such as France, Italy, and Sweden.

Internal Revenue Service figures show that the top 10 percent of taxpayers in our country pay nearly 70 percent of the income taxes. The top one percent pay 38 percent of income taxes – that's a larger share of the income-tax burden than the bottom 90 percent combined. And it's not as if taxes on the wealthy haven't already been increased substantially. During his short time in office, President Obama has already signed nearly $1 trillion worth of tax increases into law.

So the first question is this: if the wealthiest 10 percent pay 70 percent of income taxes now, how much more do you want them to pay? Do you really think they'll keep on working and investing if out of every additional dollar they earn, they have to pay as much as 80 percent or 90 percent to the government?

Second, if the president succeeds in raising the tax rate on the top two brackets, small businesses would be hit hard (remember, most small businesses are not corporations; they pay taxes as individuals, and 50 percent of small business income is earned by taxpayers in the top two brackets). Therefore, any attempt to "soak the rich" would hurt these small businesses and their employees. If our goal is to promote economic recovery and get Americans back to work, we certainly aren't going to succeed by imposing higher taxes on these already-struggling businesses and their workers.

It was John F. Kennedy who said, "an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget – just as it will never produce enough jobs or enough short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now." Accordingly, President Kennedy's tax-cut plan slashed both the capital-gains rate and top income-tax rate; between 1961 and 1968, the inflation-adjusted economy grew by over 42 percent and revenues grew by 62 percent. We saw similar positive results after the Reagan tax cuts of the 1980s.

The fact is, the best way to raise revenues is to grow the economy and put people back to work, not impose punitive tax rates on American families and small businesses.

Third, attempts to raise taxes on "millionaires and billionaires" are likely to hit many Americans who earn far less than that. There are about 319,000 households that report income over $1 million annually. However, the number of returns subject to the top two income-tax rates – the rates the president would raise – is 3.6 million. The point is this: when the president aims at millionaires and billionaires, he will hit 3.6 million people. That's also what happened as a result of the Alternative Minimum Tax. When it was enacted in 1969, it was meant to apply to just about 155 high-income households, according to then-Treasury Secretary Joseph Barr. Last year, it hit nearly 25 million households, and that number continues to grow.

Additionally, our problem is spending, not taxes. It is spending that has been driving our debt sky high, from 20.7 percent of Gross Domestic Product (GDP) in 2008 – about the 40-year historical average – to 24.1 percent of GDP this year. It's because of spending on things like the president's failed "stimulus" bill and Obamacare, as well as generous increases for numerous government programs.

A final point: we've seen what happens when Congress is asked to increase taxes in exchange for deep spending cuts. The tax increases are immediate and permanent, while the spending cuts almost never materialize. As Stephen Moore and Richard Vedder wrote in a November 2010 column in The Wall Street Journal: "Over the entire post World War II era through 2009 each dollar of new tax revenue was associated with $1.17 of new spending. Politicians spend the money as fast as it comes in – and a little bit more." How many times will we be asked to fall for this ruse?

I oppose the president's demand for job-killing tax increases. Congress should instead adopt significant spending cuts, entitlement reforms, and systemic changes that will constrain spending in the future.



United States Senator

P.S. If you wish to share additional comments about this or any other matter, please visit my website at: Do not reply to this email.

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