Soaking the rich doesn’t work

The Detroit News

It sounds like such a fair solution: The rich have more money than they need, while the poor and middle class have less than they need. So take some money from the wealthy and give it to those on the lower end of the income scale. Problem solved.

Of course, taking from the rich and giving to the poor hasn’t worked since Nottingham Forest. And it particularly hasn’t worked for President Barack Obama.

The president has been concocting wealth transfer schemes for six years, and yet today the rich are better off than they were when he took office and the poor and middle class are worse off.

A Pew Research study finds that the medium income for wealthy households is now seven times higher than that of the middle class, the largest gap in 30 years. And the very wealthiest Americans are 70 times richer than the poorest. The rich have captured nearly 50 percent more of the income growth under Obama than they did under the administration of George W. Bush.

And yet the president, in his State of the Union address this week, decided to give it one more try, proposing $320 billion in tax hikes on the rich to fund $500 bonus checks for the middle class and expand child care tax credits, among other new spending.

In making his pitch to soak the rich, Obama didn’t mention the more than 20 tax hikes on the wealthy he’s already imposed (some of which also hit the middle class).

He’s increased the top income tax bracket to 39.6 percent from 35 percent; increased the capital gains tax to 20 percent from 15 percent; and phased out tax credits and exemptions for wealthy families.

To fund Obamacare, he’s imposed on top earners an additional 3.8 percent tax on investment income, a .9 percent increase in the Medicare payroll tax, as well as other new levies.

The government may have got richer from the new taxes, but average Americans have lost ground.

That’s because the government is an inefficient Robin Hood. When it raises taxes on the wealthy, they tend to look for ways to shield their earnings from the taxman. Revenues to the government get a short-term boost, but the historic pattern is that they fall in the years after a major tax hike.

When taxes rise on investments, less money is invested in enterprises that create jobs. That helps explain the income stagnation for the middle class during the Obama years. In the four years leading up to the recession, medium household incomes climbed more than 10 percent.

Government policies play a role in other ways. Burdensome regulations and restrictions on credit have made it harder to start a business since the Great Recession, resulting in fewer job opportunities.

Meanwhile, monetary policy during the Obama years has boosted the stock market, providing a windfall to all investors, but particularly the wealthy. And hikes in the minimum wage make it tougher for entry-level workers to climb onto the employment ladder.

There’s only one proven way to move money from the pockets of the wealthy into those of the middle class and poor, and that’s to encourage the rich to invest in ways that create jobs.

Unfortunately, the higher capital gains and inheritance taxes requested by Obama will discourage such investments. The government middleman may get fatter, but the poor and middle class will continue to struggle.