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The Cost of Taxing the Rich

Zero Hedge has an interesting article about the unexpected costs of taxing the rich. It explains a problem with taxing the rich that I have never seen described elsewhere.

The basic problem is that by depending on income tax receipts from the rich to fund the government, the welfare of everyone becomes dependent on the welfare of the rich. Since most of the income of the very rich does not come from salaries but from bonuses and investments, it can vary wildly from one year to the next.

For example, the state of California gets half its income tax revenu from taxes on households that make more than $500K/year. The financial crisis hit the very rich twice as hard (in dollar terms) as it did the middle class. Because of this the state saw a drastic drop in revenue when it could least afford it.

Ironically, taxing the rich is often proposed by people that simply don't like the rich and would like to see them disappear -- but the effect of doing so is to transform the maintenance of the wealthy into a necessity for the well-being of everyone else.

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