The Investment U E-Letter: Issue # 533
Monday, May 8, 2006 Ben Stein Commentary: Did He Really Say, "The Rich Aren't Paying Their Fair Share"? By Dr. Mark Skousen
Chairman, Investment U
"With so many unmet social needs, in a nation with so many people without health care, in a nation running immense and endless deficits, it's time for the rich to pay their fair share."
Was this a quote from Bill Clinton? Paul Krugman? The late John Kenneth Galbraith? The New York Times? No, it was not one of your typical critics of capitalism. Sorry to say, this commentary comes from one of my longtime friends, conservative actor Ben Stein. Yes, the Ben Stein who keynoted the first FreedomFest, the Ben Stein who speaks on campuses around the country for the conservative Young America's Foundation, and the Ben Stein whose picture with my daughter Hayley hangs in our kitchen. I would like to think that Ben was just telling one of his funny jokes when he wrote a very laughable column in Sunday's New York Times, "You're Rich? Terrific. Now Pay Up!" Pointing his finger at the rich, he shouted, "The rich should simply not be that much richer than everyone else - especially those whose lives protect them from terrorism." He's angry about the "stunning underpayment of military men and women" and the "staggering budget deficits." And who should pay for these "unmet social needs"? The rich! Oh, they pay "so little tax," he says. Soak the rich! That's his solution… Has Ben be spending too much time with Barbra Streisand and other illiberals in Hollywood? Four Reasons Ben Stein's Commentary Is Just Plain Wrong First of all, we should pay attention to this issue because right now, Congress is deciding whether to extend the Bush tax cuts beyond 2008. And if it buys into Ben Stein's argument, investors are going to feel it in their pocketbooks. If the capital gains rate goes back up to 20%, and the dividends tax rate to 35% or more, you can forget about any bull market on Wall Street. There are so many wrong-headed myths in Ben's commentary. Let me make a list… 1. Ben is wrong that the rich don't pay their fair share of taxes. According to the latest report from the Joint Economic Committee, the rich have been paying more than their fair share for years. The overwhelming majority of federal income taxes are paid by the very highest income earners. The top 1% of income earners pay about 32% of all income taxes. The top 5% pays 51.4%. The top 10% of high-income earners pay 63.5%. The top 20% of income earners pay 78% of all federal income taxes. Take a look at the breakdown just a few years ago to give you an idea of who's footing the largest bills… 2. The so-called Bush tax cuts have made the system even more progressive. The bottom 20% are now paying less, and the top 20% are paying even more, according to the CBO tax report. 3. There is no evidence that increasing taxes does anything to solve these social problems that he raises. Ben Franklin wisely said, "Revenues without economy are never sufficient." Tax revenues have increased every year since the Bush tax cut in 2001, yet the deficits continue to grow bigger and bigger. The answer is not to feed Uncle Sam more; Uncle Sam must learn to control his appetite through a constitutional amendment requiring a balanced budget. 4. Ben should realize that a tax on the rich is a tax on capital formation. The vast majority of the savers in this nation are the rich, and to penalize them even more with progressive taxation can only reduce their propensity to save. Do we really want to discourage saving in a nation that has the lowest rate of saving in the industrial world? The Ghost of John Kenneth Galbraith I sometimes think that Ben Stein was suddenly possessed by the spirit of John Kenneth Galbraith, who died last week. Ben's entire column is nothing more than a replay of Galbraith's The Affluent Society, where he argued "public services have failed to keep abreast of private consumption." And what was Galbraith's solution to this "social imbalance"? Transfer more private wealth (via progressive taxation) to the public sector! Sadly, my old friend Ben Stein has made the same mistake. Instead, he should have wisely advocated privatization, a flat tax, a constitutional amendment, medical savings accounts, and other incentives proposed by "public choice" economists. Good investing, AEIOU, Mark Today's Investment U Cribsheet - So, what about a flat tax? Steve Forbes, editor and publisher of Forbes, shared his investment and tax philosophies with Investment U last fall. Get his views on oil, gold and his proposed 17% flat income tax in his Investment U two-part interview series: Part 1: Interview with Steve Forbes: Why He Thinks Oil Prices Are Going Down…and Part 2 of IU's Interview with Steve Forbes: Why He Blames Inflation and Taxes for Stock Market Woes
- Taxes aren't just a burden on rich individuals. Big corporations are also taking a hit… The excess profit taxes on oil companies, for example, can hurt your energy stocks. In Investment U #488, Where To Invest Your Money NOW…When Your 15% Investment Tax Is On the Line, find out why reckless fiscal policy hurts investors, and what you can do about it.
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