Fiscal Cliff Solutions: Why Raising Taxes on the Wealthy Is The First Step

Taxes should be raised on the rich. The fiscal cliff negotiations will not proceed until Republicans agree to this. American citizens, including more than half of Republicans believe this needs to occur. Raising taxes on the rich is the will of the people, including many rich people; including Warren Buffett. Americans when polled state that if a resolution to the fiscal cliff is not found; Republicans will be blamed. That is reality.

You are a reasonable person. You are reading articles online so that you can understand the issues and see how you feel. It is awesome that you chose to remain engaged in Democracy past the elections. Politics is the art of choosing how resources are spent and on whom. These decisions impact you and you should stay involved. 

Prior to reading this, I want you to understand that we should be taking actions that are the best for everyone. The wealthy deserve an outcome that is the most in their favor possible; as does everyone else. I'll explain towards the end how blocking increases in taxes on the wealthy has already done more damage to them then good.

Here is what you need to know about this issue.

1. Americans should admire the wealthy

The rich earned their money. They, as many Americans do, work hard. If you hate the rich, your prosperity will be limited because you won't be striving to become that which you hate. In that case, if you are poor, it is your own fault. Go to school. Invest in yourself, invest in businesses, stocks, and other assets and become wealthy yourself. Find a mentor who is very succesful in your field and become the best at what you do - become wealthy.

Raising taxes on the wealthy will impact them. Their money has been planned out. Even if they have a million dollars a year coming in they know exactly what purpose it is for. People who carefully manage their money tend to have more. You should more carefully manage your money and build plans to grow your own wealth.

If someone went to Harvard; they may want their kids to go there. If they are a highly educated surgeon; they may want to live in a neighborhood with highly educated people like them. This costs a huge amount of money. A wealthy person earns their living and works hard to have the lifestyle that they want. Receiving the results of their hard work is fair. Consider the cost if a wealthy person is trying to put three kids through Harvard at $40k a pop, per year. Would you expect a wealthy Harvard graduate to want to send their kids to community college?

We must start by understanding that their money was earned fair and square and this is not about malice against wealthy people.

2. Understanding the problem

There are two parts to the problem. The deficit is the amount of money we spend each year as a country that we don't have. Almost every item that is part of the deficit both Republicans and Democrats have signed into law. Consider that the two wars cost a couple trillion dollars and were not offset by increased taxes; in fact, taxes were lowered. Both Republicans and Democrats sent this nation to war. That is part of the deficit.

Part one, is bringing down the amount that we spend each year that we do not have. 

Next, we have the total debt. The total debt is $16 trillion. This is the money that was already spent; and again, most policies making those costs were signed by both parties. We pay interest to service this debt. 

Part two, is bringing down the total debt.

Though there is wasteful spending and lots of it, all the cutting in the world won't make the existing debt disappear. $16 trillion dollars is a lot of money. 

3. Both cutting and taxing will be to the detriment of all 

Cutting headstart, which helps a child whose parents don't speak English get ready for school, will be to the detriment of that child for his entire life. One boy who might have grown up to be the next Edison instead will struggle to learn how to read his text books, or speak to his teachers in the early years of his schooling.

Cutting Medicare will impact the resources that go to help senior citizens. One day, you and I will both be senior citizens. Are you sure we won't feel it when that is cut? Heck, maybe someone is proposing cutting this medical care earlier so that people just die younger. 

Every single cut is directly to the detriment of someone. The impacts are real and the impacts are deep.

Taxing anyone does take money out of their pocket. They have less money to invest, they have less to spend, and the government then makes the decision as to how that money can better benefit society.

In order to repair our fiscal situation we will need to take many moves that are to the detriment of all.

4. How the math adds up

If we need to cut $1.2 trillion in spending a year to bring the deficit to zero (nevermind paying off the debt) how do we get there?

Choice 1: Cut everything 

Cut 100% from Medicare.

Cut 100% from social security.

Cut 100% from education.

Cut 100% from the military.

Do you see anything in there that is not to the detriment of someone? 

We'd almost have to cut every social program to come close to solving this problem.

Choice 2: Tax everything

Raise taxes on all Americans until revenue is sufficient to pay for the services that citizens are relying on.

Bottom line: There is a revenue side of the equation and a spending side of the equation.

Choice 3: Cut spending, reduce deductions, increase taxes

Well, if you do it this way ... what happens to the math?

Well, we cut spending ... so we aren't wasting as much and we'll have to focus on our priorities as a country.

We've reduced deductions ... so maybe someone with 12 houses shouldn't get the mortgage interest deduction on all their houses ...

We've raised taxes as part of a broad mix, so we don't have to raise them by that much.

Bottom line: We will need to dial down the spending, dial up the taxes, and dial back the deductions until we reach the point where our deficit is zero, we move to surplus, and we have extra money to pay down the debt. By coming at the problem from all angles it is to the least detriment to all involved. This will hurt everyone!

5. Why taxing the rich is okay

Recently, a report came out that stated taxing the rich will not have much impact on the economy. Republicans went after the research economist (whose reports they had used in the past) with such a fervor that he retracted his study. Also, the CBO states that economic growth will be 1.5% without raising any taxes and 1.25% if some are raised on the wealthy. So not a huge impact. Read more.

Economists rate the impact of certain factors on stimulating the economy. The most stimulative approach is food stamps (which Republicans are targeting for cuts). Tax cuts for the wealthy are about number 12 on the list of stimulative factors. Republicans want to cut highly stimulative items to prevent rollback and keep barely stimulative tax rates at normal levels.

Bottom line: If we don't raise taxes on the wealthy we will have to cut something else that is far more stimulative for the economy.

Here is an Op-ed from the Baltimore Sun, written by an executive on what the reality of the taxes are. He states that there are so many tax loopholes that corporate taxes are rather low relative to the world. He also states that taxes were raised under Clinton when we added 22 million jobs in eight years. 

One step further, the wealthy have money. Being rich means that there is something there to talk about. If we are going to solve this problem, we need to find solutions that we can actually talk about, which will have a real impact on the problem. With regards to the poor and middle class, we can talk about what to cut. With regards to the wealthy, we can talk about what to tax. That's just reality.

6. Raising taxes on the wealthy will benefit the rich

We don't call someone rich because he has a big paycheck coming in next week. We call them that because of what they have held onto. The discipline it takes to hold onto money and invest it is what makes people wealthy. The paycheck, or active income is less of a question in this than the overall "net worth." 

Net worth is all the resources that someone has held onto and value of the assets that are producing money. A wealthy person counts how much stock they own, how much property they own, and how many businesses they are partners in. They also count the benefit of their education for their earning potential. The actual paycheck is not what makes up the core of a wealthy person's net worth. The income producing assets that have already been purchased are.

The value of assets held by a wealthy person goes up when the economy is better. About 90% of stocks are owned by the top few percent of wealthy people in America. When the economy is doing better the value of stocks goes up. The net worth and overall wealth of all rich people then goes up.

Thus, the rich should want us to do absolutely whatever we can to improve the economy, even if it means raising taxes because it will trigger a rise in asset values that will dramatically increase wealthy people's net worth.

In fact though, wealthy people are buying stocks and property like crazy now because the uncertainty leads to discount prices on all of these. This is the best time to buy stocks, real estate, and everything. At this moment, poor and middle class people will be selling their assets and the wealthy will be gobbling up as much as they can.  

Bottom line: The rich are doing the right thing today. The poor and middle class are doing the wrong thing. When the economy pops forwards, the rich will get much richer. By raising taxes on the wealthy, as part of the puzzle for reigning in the deficit and paying down the debt, certainty across the economy will go up. Expanded economic activity will drive up wealthy people's net worth. The positive impact will be far greater than the detriment AND it will help our government get its house in order.

7. Republicans blocked other measures that would have made this less necessary

Republicans have been blocking all jobs bills since they had the capacity to when they took over the house. More than 20 to date. Some would have been funded by taxing the wealthy. Last year, we would have had more than $2 million more new jobs. All 20 of those bills were blocked. Read more.

Now, rather than generating $2 million more tax payers to help bring the deficit down and pay down the debt, we are bringing the wealthy into paying the debt directly.

Oops. Republican's previous attempts to shield the wealthy are already hurting them. In the medium term taxes will have to be raised by far more on the wealthy to cover the budget shortfalls that could have been overcome by outgrowing the problem.

This is how the math equation is spelled out for the approach that Democrats wanted to take, which Republicans filibustered.

1 new job = a new tax payer.

1 new job = one less person on unemployment benefits and government assistance.

Businesses pay increased fees to cover the higher amount of unemployment insurance.  They pay into that directly every year.

So instead of one job added minus the negative spending on benefits minus the negative spending businesses have to put forwards for unemployment benefits, now we have to just tax the rich directly.

It is a positive to earn more tax revenue from more employed people. It is a positive to spend less on unemployment and other benefits. It is a positive when businesses have to pay less in unemployment. Republicans used all of their energy to block the things that would have led to three positives. Instead, they protected the wealthy. Now, the deficit and debt problems are bigger and the wealthy must pay into it directly.

What do you think will happen to the value of the assets of the wealthy if the federal government defaults on its debt or goes bankrupt?

Quick summary: Stop hating the rich. We should admire them and function with discipline so that you and I should be so wealthy. Realize that everything will need to be trimmed and revenue will need to be added from every direction so that there is the least detriment to every individual group. This is a math equation with a very large number that needs to be reached. Taxing the wealthy is part of a much larger puzzle. Once the puzzle is under control the economy will boom and the wealthy will have a great boost in their net worth. Actions that prevented growth from occuring in the past already have done more damage to the wealthy than tax increases would have. The sooner we get this uncertainty off everyone's table the sooner prosperity will increase for all.

Taxing the wealthy is okay because its economic impacts are mild and because everyone takes a hit together. May as well spread the damage so that we can all stomach it a bit better together as a united citizenry. Rather than having all the cuts to the poor, middle class, seniors, and others, the rich should not be left out of the equation.

I'm not sure why ... but it seems like Republicans want to divide off the wealthy from America in doing their part to help solve what amounts to a mathematics problem.