Tags: Gramm | Taxing | Rich | income

Phil Gramm: Taxing Rich More Isn’t the Answer

Friday, 06 Apr 2012 10:56 AM

Former Senator Phil Gramm and former White House Office of Budget Management deputy director Steve McMillin say taxing the rich more won’t provide income equality.

“While income distribution has become a source of protest and political debate, any analysis of taxes paid in high tax-and-spend countries shows that the U.S. has the most progressive income tax system in the world,” Gramm and McMillin write in The Wall Street Journal.

"An inconvenient truth for the advocates of higher taxes on America's rich is that big governments in developed countries are funded not by taxing the rich more than the U.S. does, but by taxing everybody else more."

Editor's Note:The IRS’ Worst Nightmare — How to Pay Zero Taxes

This growth in income inequality is largely the result of three dynamics, according to Gramm and McMillin: changes in the way Americans pay taxes and manage their investments, the dynamic shift in the labor-capital ratio that came about from the adoption of market-based economies around the world, and flourishing economic freedom and technological advances in the Reagan era that came from lower tax rates and regulatory burdens, and an improved business climate.

“These changes have not only raised the measured income of the top 1 percent, they benefited the nation and the world,” Gram and McMillin say.

Moreover, a significant amount of what is now declared as personal income by the top 1 percent is actually income from businesses that are now taxed as individuals.

The reported income of the top 1 percent also significantly increased as tax rates on capital gains were lowered.

“By reducing the penalty for transferring capital from one investment to another, these lower tax rates increased the mobility of capital,” Gramm and McMillin say. “High-income taxpayers sold more assets, declared more income, and paid more taxes.”

Forbes magazine reports research by National Bureau of Economic Research head James Poterba shows that increasing the return on saving via the tax code strongly affects how much we save.

In his studies of how the introduction of tax-advantaged accounts such as 401(k)s and IRAs impacted savings rates, Poterba found that these innovations increased savings by roughly 30 percent to 40 percent.

Editor's Note:The IRS’ Worst Nightmare — How to Pay Zero Taxes




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