To Tax Or Not To Tax – Essay

To Tax Or Not To Tax – Essay

Two authors by the names of Paul Krugman and Fred E. Foldvary have varying opinions on the topic of taxing the rich. The debate they’re writing about is whether or not the US should increase the tax burden on the rich. Foldvary states in his “The Evil of Taxing the Rich” article that there are a lot of negative affects that would come along with taxing the rich. Mainly, he says the rich are paying a much larger percentage of federal taxes already, so their taxes shouldn’t be any higher. Also, he makes point that increasing the tax burden on the rich is an evil lie because the taxes the rich pay are returned to them through land-value subsidies. Paul Krugman believes that the middle class’ tax burden is unfair and harsh when compared to the tax burden on the rich people in America. His main point in his argument is that the income growth for the upper class since World War far outweighs that of the middle class. Since World war two, the income of the richest Americans has grown by 480 percent.

Why should the rich not receive higher tax rates? In Foldvary’s article, he says, “Higher taxes on goods or labor raise their costs, and therefore reduce their quantities. This reduction in output, income, and investment is called the deadweight loss or excess burden of taxation, and has been estimated to be over $1.5 trillion per year “. This basically means that increasing the tax on the rich would cause the middle class to spend more money for the things they buy because the companies they buy from are all ran by rich tax payers. This could be devastating to our economy, and would still cause a burden on the middle class even when paired with lower tax rates. Also, Foldvary provides information showing how the rich are already paying a much larger percentage of federal taxes already. So, while increasing them would benefit the middle class, it would put an unfair burden on the rich. He then makes a point stating “higher marginal tax rates on the rich result in much less investment, entrepreneurship, and production, and that ends up hurting all society, including the poor.” This is a major point in his argument. The economy runs off of investments and
entrepreneurship and if those things come to a halt, the economy will crumble. This is all because of the effect of deadweight loss on the economy. With less deadweight loss the economy can grow quicker. Returning fire, Krugman provides evidence of how the tax burden has fallen for all classes. But, while the burden has indeed fallen, payroll tax, which is the tax paid by most workers and taken out of their checks, has gone up. Since this tax has gone up, people are still paying more money but the difference is they never even get the chance to see this money; it’s taken away before they get their checks from their jobs. I believe Krugman is trying to say that either way the middle class will pay more money in the long run so the government should raise the tax on the rich and if need be, the taxes on goods also because at least with this change, people will be able to choose how their money is spent.

Foldvary also makes a point that brings morality into the equation; “The moral case against taxing the rich is that if they earned the money with their labor, it is morally wrong to take away their earnings by force.” To combat this, Krugman states the fact that the taxes on the rich should be increased because they are becoming richer. So they aren’t working any harder, they’re simply getting paid more for the same work. The middle class’s wages have gone up but they are miniscule when compared by percentage to that of the rich. To make the situation worse, the lower class is stuck with a measly $7.25 for minimum wage in some states. Krugman knew that the supporters of not taxing the rich would bring morality into the debate, he strikes back with saying that this “misses the point that all of us live in and benefit from being part of a larger society.” He also supports his claims with quotes from Elizabeth Warren, a financial reformer. She said “There is nobody in this country who got rich on his own. Nobody,” she points out that the rich can only get rich thanks to the “social contract” that gives them a society that functions to their benefit. To sum this up, Krugman is saying the middle class are being treated unequally when it comes to morality because success in American society is geared more toward the upper class.

Krugman returns fire with his opinion that, when comparing percentage
increase on income, the income of rich in the US has risen by 480 percent and the income of the middle class has risen by a mere 21 percent. He writes, “one-fourth of those with incomes of more than $1 million a year pay income and payroll tax of 12.6 percent of their income or less, putting their tax burden below that of many in the middle class.” Foldvary responds to these points as follows, “According to IRS data, the top 50 percent of wage earners pay over 96 percent of income taxes, the top 25 percent pay 82 percent of income taxes, the top 10 percent pay 65 percent, the top 5 percent pay 53 percent, and the top 1 percent pay 34 percent of income taxes”. These statistics show how much of total income tax the rich actually pay and since these numbers are so high, with this, Foldvary proves that even though the rich obviously have more money, the US take a very large portion of it away from them when income taxes are paid.

Surprisingly, Foldvary and Krugman do agree on one point even if they never noticed it. To support Krugman’s claim of there being a “social contract” that helps the rich gain more money, Foldvary provides us with evidence that the biggest push the rich get is from “the gigantic land-value subsidy of government spending.” Landowners only pay a fraction of the bill in property taxes on land when there is $3 trillion dollars coming out of land rent annually. So when the landowners receive their profit from owning land or renting out properties, they make a ton more money than they put out to maintain their ownership of those properties. Since these land rent taxes are so low, Foldvary made the suggestion that the US government should increase the tax on these taxes because it would eliminate the deadweight loss that I spoke about in an earlier paragraph.

In conclusion, the debate over taxing the rich is very complex and it will probably be and on-going debate for many years. People like Krugman and Foldvary help us to establish a better view of the different reasons why the tax burden is the way it is. Foldvary completely opposes increasing the tax burden on the rich because even with increasing it, the rich will still be at an advantage because they control all of the consumer goods that the middle class purchases. Krugman, on the other hand, believes the middle class has too high of a tax burden, he believes the rich in America have
much more money than they need. Akthough they disagree on almost every topic in the discussion of the tax burden on the rich, both of these men agree that the economy is geared toward helping the upper class gain more money.

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