The Fiscal Cliff. Unfunded Liabilities. Sovereign Debt. Trickle Down Economics.

On a daily basis in our modern information driven society we’re often inundated with the new currency of mass media, Buzzwords. These buzzwords and trends representing terms or ideas are summed up into neat little sound bites and talking points then distributed on a mass scale. While these euphemisms and catch phrases are great for cramming information and ideas into smaller portmanteaus and other delivery devices, they often fail to express the full meaning of what they truly represent, or the ideas and consequences behind their existence. Each one is touted as the next crisis and it seems there is a new one introduced to us nearly every week that carries with it the most dire of consequences if not fully understood. Yet how many people actually understand the true nature of ‘The Dreaded Fiscal Cliff”? How many people can effectively explain the challenge presented by unfunded liabilities while calculating a nations “Sovereign Debt”?

Lately, most talk has circulated around the looming Fiscal Cliff and Budget Deficit, and the different ways that this can or cannot be managed. One idea that has been around for ages but has yet to be truly ‘euphemized’ is an increase of taxes on the wealthy. (Incidentally, if you come up with a great way to coin this idea don’t be shy and share it with us in the comment section.) But more and more this potential solution raises more questions than answers, with supporters and naysayers coming out of the woodwork to voice their opinions. Personally, I don’t think this is the best solution for several reasons.

Before we move forward let me be clear; The intention of this exercise is to demonstrate how the idea of increasing the amount of tax on the wealthy (let’s call it WAX) would not alone solve the problem of the federal budget deficit which currently is running above $1 trillion a year.

  1. The Math isn’t there: According to Economics professor Antony Davies, It would take The top 5 % of income earning Americans paying close to 90% of their income in order to pay down just the Federal Budget deficit from this year. That amount of WAX would actually lower the top 5% earners standard of living to below that of the lowest tax bracket in the U.S., creating a very realistic incentive for many wealthy Americans to leave the country entirely, simultaneously removing them and their already significant tax revenue from the system altogether, while also only dealing with that years deficit. So the next year, without spending cuts, we’d face the exact same problem from the year before, but with a far smaller pool of tax revenue to draw from as the wealthy have all already been WAX’d, or have left the country in the name of preserving their standard of living.
  2. The Math isn’t Fair: Taxing one specific group of citizens a significant amount more than all the others combined seems less like fairness and more like class-ism. Say all you want about how the wealthy take advantage of the system and do their best to avoid paying taxes at all cost. The bottom line is that it is objectionably unfair to charge someone more for the same services simply because they have more. Also, I’d be willing to wager, most Americans humans if put into that situation would react in a similar way to protect their own interests and families.
  3. You can only Eat the Golden Goose Once: Time and time again history has shown that raising taxes alone is not the answer. People in general, regardless of class, do not like paying taxes. No one does. The difference is that when taxes are raised the wealthy sometimes, rather than being mercilessly WAX’d, have the means to insert themselves into more favorable tax situations (certainly not the status quo), removing their entire tax revenue from the base altogether; ie a Net loss for the entire country. Never mind the arguments about jobs they create with their entrepreneurial adventures into this often frightening economy and all the intangible value associated with having a happy producer thrive. Let’s just talk about the very real 30% of the tax base they already produce from their 5% of the population. Know how much that equals? That’s roughly 15 million citizens paying a total of around $720 billion or, divided equally amongst the them, $48,000 per top 5% earning citizen/year (close to the equivalent of the per person debt total) just to service the deficit. Compare that to roughly $5,600 per citizen/year if the remaining amount was divided up equally amongst the remaining 300 million US citizens (which it is not).

So what does this all mean? As a sole measure of avoiding the fiscal cliff and reeling in the deficit, raising the wealthy citizens tax rate (WAXING), which was a major pillar of the Obama Re-election platform and is currently being interpreted as a mandate by the administration; is mathematically unsound, fundamentally unfair, and philosophically misguided.

Written by Carter Smith exclusively for Resourcespots and KEreport.com