How Taxing the Rich Hurts The Middle Class


History has shown time and time again that taxing the rich as a means to increase revenues and close budget deficiencies just doesn’t work.  While the rich have a larger reservoir to draw from, they also own a bigger chunk of the economy.  Tax hikes on the rich hurt middle class Americans, and as the fiscal cliff approaches the actions being proposed sound eerily like programs that have already been tried.

In 1969 congress passed the Alternative Minimum Tax.  They did this because at the time there were a small number (115 total) of households that chose to invest heavily in bonds and were paying little to no federal income tax.  Today, the alternative million tax is paid by over four million households.  On January 1, 2013, after we tumble over the fiscal cliff, the tex is set to reach another 27 million households.  What began as a tax on 115 wealthy households will have grown to reach over 31 million families, many of which are not part of the 1 percent or 2 percent that has drawn so much ire from the public.

Another tax aimed at the wealthy – the Personal Income tax – has also found its way into the middle class.  The Personal Income tax began in 1913 and topped out at 7 percent.  It only affected those with an income of $500,000, which would be roughly $11.5 million when adjusted for inflation.  However, this tax that began as something designed for only the rich is now imposed on roughly half of American families.

This phenomenon of taxes beginning with the rich before trickling down to other Americans can also be seen in individual states.  Maine for example imposed a state income tax in 1969 on families earning more than $308,000 (adjusted for inflation to today’s rates).  However, today the tax kicks in at incomes of $19,950 and above and the rate is 8.5 percent.  By these standards, most residents of Maine are considered rich and are subject to the tax.

When put to the vote, measures to pass taxes on the rich are usually met with opposition.  In 2010 Washington state asked voters to pass a bill that would impose a tax on residents making over $200,000.  The tax was similar to the plan Obama proposed.  It was defeated by 64 percent of the voters.

The main reason that taxing the rich doesn’t work is because the revenue generated by these plans is always spent almost immediately.  In order to compensate for the spending, the taxes much be broadened to encompass more of the population.  The latest plan proposed by President Obama includes a controversial spending bill that spends all of the money raised through tax increases on wealthy Americans.

Once a new tax is imposed on the wealthy, it is only a matter of time until the middle class feels the crunch.  Voters with foresight and an education in US spending habits tend to agree that increasing taxes on the rich will not solve the nation’s debt problems.  Instead, it will only add a greater burden to the middle class that is already facing a bleak future.

About The Author

Edwin is a marketer, social media influencer and head writer here at Debt Syndrome. He manages a large network of high quality finance blogs and social media accounts. You can connect with him via email here.

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