Misconceptions of Taxing the Rich


No matter what happens over the next several decades, we can be sure of one thing: the rich won’t be paying their fair share.

It seems that all the troubles of the world could be solved if only the rich paid their fair share. We could afford the $93 trillion Green New Deal. We could afford the increasing costs of Social Security and Medicare. We could afford free healthcare, free college, and loads of other free things!

This is, of course, absurd. Assertions like these are partially based in the misconception that the super rich have a majority of their wealth stashed away in bank accounts as currency or other liquid assets that can be easily taxed. In reality, most rich people (like Bill Gates) keep their wealth within their businesses in non-liquid forms, making it much harder to tax or confiscate. Most of their wealth is being used within investments to generate more wealth, the profits of which are then usually reinvested.

To raise taxes on the rich to the point many are thinking (Ocasio-Cortez wants 70%) would be unsustainable. Big businesses would pack up and move elsewhere, and the rich would either exploit loopholes or leave the country.

The response to this prediction will no doubt be to point out the history of high tax rates in the United States in the past. But they often leave out the full story that shows the much smaller amounts that people actually paid.

But all of this ignores the main problem with demanding the rich “pay their fair share.” The necessary response to anyone declaring such should be: “How much is their fair share?”

This question will never have a common answer, because such a question is never discussed. All we know is that it’s more than they currently pay, and this will always be the case. It’s much easier to encourage support for taxes by asking that a certain group pay their “fair share” than by asking that a certain group “bear the burden” or “suffer the cost.” The latter examples imply a negative (suffering) to gain a positive (revenue), but the former implies an all-around positive. Not only is the tax revenue a positive, but so is this act of taxation itself, because it is believed to be “fair.”

As soon as the words “fair share” are mentioned, there should be an immediate demand for clarification. This is similar to the concept of a “living wage” within the minimum wage debate. One should demand specifics. Using terms like these result in a general push in a certain direction with no end in sight. Even if the top income tax bracket was moved to 100%, there would be complaints that the rich are hiding their remaining wealth elsewhere, thus preventing them from truly paying their fair share.

In this case the slippery slope argument is not a fallacy. If there is no set end in sight, this claim that the rich aren’t paying their fair share will continue endlessly until the rich cease to exist (the intended goal of leftists).

Even if they were to define the exact number that they see as one’s “fair share,” this is not enough. To throw out an arbitrary number without any reasoning is useless. They must also show their math. If it’s true that the rich aren’t currently paying their fair share, they must be able to show how they came to such a conclusion. If it’s nothing more than an opinion with no defense, it can be immediately dismissed.

According to the table below from the Tax Foundation, the top 1% paid 37.3% of all taxes, with the top 10% paying almost 70% of all taxes. Expanding further, the top half of taxpayers contributed 97% of all tax revenue. One could suggest from this data that it is the bottom 50% that isn’t contributing their fair share. But rather than raise taxes in the name of supposed fairness, we should lower taxes across the board. If the poor are struggling, we could start by letting them keep more of their own money.

This chart also shows the problem with claims that tax cuts are bad because they primarily help the rich. It shouldn’t be a surprise that a tax cut disproportionately favors those that pay more in taxes.

This is less a defense of the rich and more a critique of shoddy claims. The idea that we can afford massive government programs simply by taxing the rich is nearly as absurd as the bland assertion that the rich aren’t paying their fair share. The problem with claims like these is that they’re often blindly asserted as self-evident without the smallest bit of defense.

Before responding with a full rebuttal, simply ask for an explanation to accompany their assertion. How much is their fair share, and how did you come up with this number?

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Nathan A. Kreider is author of the Misconceptions column for Being Libertarian, and has written for the Austrian Economics Center, the Foundation for Economic Education, and the Liberalists. He also occasionally publishes a blog and video content, including short book reviews, which can be found on his website, nkreider.com. He can be contacted by email via [email protected]