When arguing over the Fiscal Cliff and national debt the claim is that higher taxes on the rich could solve all our financial problems. Investing guru Warren Buffett and The New York Times columnist Paul Krugman argue that the tax code should revert to the 1950’s, when business was booming despite an extremely high tax rate on the rich of 91 percent. Some financial experts believe this idea is mistaken.
According to RealClearPolitics, Paul Krugman has a misplaced nostalgia for the 1950’s:
“America in the 1950’s made the rich pay their fair share; it gave workers the power to bargain for decent wages and benefits; yet contrary to right-wing propaganda then and now, it prospered. And we can do that again.”
Peter Schiff, the CEO and chief global strategist of Euro Pacific Capital, says those who desire 1950’s-style tax rates are not looking at the whole picture. Schiff told The Daily Ticker that taxing the rich based upon 1950’s style rules would not work:
“There’s a myth out there propagated by people like Warren Buffett that the rich used to pay much higher rates of tax than they do today. The truth is the opposite.”
Peter Schiff is best known for his 2007 book Crash Proof, where Schiff correctly predicted the collapse of the housing bubble and the following 2008 financial crisis. He explains to The Daily Ticker why this idea of taxing the rich did not work then:
“When they first created [the federal income tax], the top rate was only seven percent. It was sold to the public as a tax that would only hit the rich. It was to soak the rich, very similar to the debate we’re having today. Relatively soon, it was middle-class Americans that were drowning in an income tax with rates much higher than what was reserved for the rich.”
Schiff explains how the tax shelters of the day allowed the rich to hide their wealth away from the government:
“Back in the 1950s there was only one kind of income; now there’s three. Back then income was income. You could deduct losses in one category from gains in another category. Today you cannot do that. In fact, if we really were going to go back to the tax code of the 1950s, we’d have to have massive tax cuts for the millionaires and billionaires and big tax increases for everybody else.”
Schiff says that the economy of 1950s did not do well because of high taxes. He claims the opposite is true, that America benefited because the rich and the corporations could avoid those high taxes based upon the tax code of the time. Going further, Schiff claims higher taxes on the rich are not the solution to the United State’s $16 trillion and growing debt:
“The problem is right now we have all this government, and nobody is paying for it. Sure, the rich are paying for it – they’re already paying more than their fair share – but unfortunately the middle class and working poor are getting a lot of government basically for nothing. I think that maybe if the middle class was asked to pay for it, instead of thinking they were going to get something for nothing, they wouldn’t want all this government in the first place.”
Of course, Schiff’s idea for a final solution would have Liberals and Progressives everywhere howling:
“The best thing we can do for economic growth is to lower taxes on the rich…they’re already too high…but we also have to acknowledge that government is too big. We have to dramatically reduce the size of government spending and if we don’t do that then we need to be talking about tax increases on the middle class and working poor.”
This suggestion sounds ridiculous on the face of it but unfortunately the math sides with Peter Schiff. Although another suggestion would be to tweak corporate taxes, not the personal income taxes of the rich, so that the United States is more competitive in the global economy. As previously reported by The Inquisitr, even if the rich were taxed at a 100 percent tax rate this would only cover a portion of the Federal deficit caused by Congressional overspending. Considering these facts, the poor and middle class are faced with a stark choice: cut back or increase taxes.
Should the government increase the taxes of everyone, including the poor and middle class, to cover the current level of government spending or should government programs be cut back?