I do not count myself among the “rich,” the top 1 percent of earners they talk about in the news these days. I am an accountant, have done accounting mostly for very successful firms and their owners for the past almost 40 years, and I can tell you why “tax the rich” will not work to raise revenue and reduce our national deficit.
Rich individuals earn their income mostly from dividends and the sale of appreciated assets - stocks that have gone up in price mostly. Currently, wealthy people pay near 50 percent of their profits between federal, state, city tax, sales tax, property tax etc.
While middle-class individuals get a salary and must draw that salary to live, wealthy people can sell their appreciated stock or not and can invest in a nondividend-paying “growth stock” if there are tax advantages in doing so. When tax rates go up to what they perceive as unfair and confiscatory - 75 percent and more - they will make investment decisions on tax implications rather than on sound financial investment principals.
This is bad for the economy and will not boost tax collections. These rich folks will hire more tax accountants and lawyers who will find the loopholes and shelters that will continue to exist. They can buy rental housing properties and depreciate them or purchase oil wells to depreciate or, worst of all, they can invest overseas, where tax rules are more friendly.
“Tax the rich” makes for great political theater but will not work. Take 50 percent of someone’s income, and it is fair. Take more, and the government is only asking for trouble.
retired financial executive