SAVING AND INVESTMENT DRIVE WEALTH CREATION, NOT CONSUMPTION
August 10, 2004
John Kerry's proposals to raise taxes on the wealthy will do far more harm than good because they will drive up the cost of capital and reduce incentives to produce, says economic policy and political commentator Jack Kemp.
Kemp says rolling back the tax cuts for the wealthiest Americans -- those who make more than $200,000 a year, including roughly 70 percent of all small businesses -- indicates a poor understanding of economics:
- Lowering the tax rate serves to increase total tax revenues -- not decrease them -- because the wealthy are given incentives to produce more and refrain from sheltering their incomes.
- Increasing taxes makes capital more expensive, thus depressing productivity growth, which slows the growth of employment, wages and the size of the economy.
Moreover, the argument for higher taxes on the rich rests on a simplistic assumption that a worker's station in life is fixed. In fact, as the middle class gets richer, they will be driven into higher tax brackets. According to the Urban Institute:
- About 25 percent to 40 percent of Americans move from one income quintile to another in a single year.
- Over long periods the shifts are larger: approximately 45 percent of workers over 5 years and 60 percent over 15 years will change income quintiles.
Source: Jack Kemp, "Weapons of class warfare," Townhall.com, August 2, 2004.
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