Does anyone seriously doubt that our elections today, especially for the President and members of Congress, are more like popularity contests than they are about choosing the right person for the job at hand? Why are we constantly informed of the President’s opinion poll and declining or increasing “popularity” based on that poll, on a daily or weekly basis?

So given that politics are a popularity contest, it stands to reason that politicians in such a system will pursue the most popular policies, whether they are good policies or not – all that is needed is a justification that the masses will buy into, and you are golden. One of those time tested justifications is taxes, especially taxes on the rich. I’ve written about this before (see taxation part III and Take Ben Stein’s Money for a couple of examples.) And it’s happening again. The Democratically controlled Congress is proposing, and the President’s office has suggested that they might support, reducing future tax increases on the middle class by raising taxes on the rich. Ah, the Robin Hood theory of taxation and wealth redistribution. Too bad it never works…

As I’ve pointed out in the past, and as the newsletter editor to which I subscribe pointed out very well, taxes that target the rich don’t affect the rich, because they don’t pay taxes like the rest of us. Most of us pay taxes based on W-2 income from our jobs.  What do you think Bill Gates or Warren Buffett’s W-2 income is?  Probably not much – they don’t need it.  Neither do the politicians, since you have to be fairly wealthy to get elected these days anyway, and Congress isn’t the highest paying job around (for example, Bill Clinton is said to have made around $250k a year while in office, and has made over $40 million since leaving office on speaking engagements).

So increasing taxes on the rich really affects the higher wage earners, not the wealthy. The Alternative Minimum Tax is a prime example of this – drafted as a tax on the rich who weren’t paying “their fair share”, it now entraps much of the middle class working stiffs because it is based on income, not wealth. (And if you tax wealth, you step even further towards socialism and communism, by removing the ability and incentive to work hard to get ahead.)

At the end of his excellent book, The Screwtape Letters, C.S. Lewis included an imaginary discussion between devils on the benefits of democracy (included in some printings of the book) entitled “Screwtape Proposes a Toast“. I highly recommend reading it, as it discusses why, instead of allowing people to achieve their highest potential, democracy actually succeeds in pulling everyone down to the same level as the lowest common denominator because of policies like this proposed tax. (My words, not his.) Equality is assumed, effort is discounted, and if I am working for $30,000 a year, why should someone else get more? But again, I digress…

Taxes such as the one proposed will hurt the high wage earners, will not help the others (because the money it raises has already been spent by Congress on their pet projects) and will increase the gap between those that have (the wealthy) and those that don’t (the middle and poor classes) by making it harder to achieve wealth. According to Stansberry and Associates, the high-income earners that will be paying this new tax already pay an average of 46% of their income in taxes, when you measure federal, state, local and sales taxes. How much incentive is there to work really hard to be one of those people and live on half of your income?