Why taxing the rich NEVER works

People often mistake INCOME and WEALTH as the same thing when nothing can be further from the truth.  When people hear that we are only going to increase taxes on the millionaires and billionaires they compute the amount of money they think the government will pull in based on their wealth and not on their income.   We forget that the tax we pay is the INCOME tax and not a wealth tax.  As the word income implies, its the wealth that is in-coming or coming-into our possession.  Once possessed it cannot be taxed again.

The millionaires and billionaires may in fact end up paying ZERO federal income tax when all is said and done.  How this is done is not magic or some hidden fund or loop-hole they are utilizing.  Instead it is simply by reducing their "income" to zero and zero times anything is still zero.  They can do this because they can afford to do this.

If I gave you 10 million dollars, you would be able to live out the rest of your life fairly comfortably.  For me that would give me about $300,000 per year.  I would not have to invest it at all and therefore pay no tax on it.  This is how millionaires and billionaires would circumvent the increase in taxes altogether and in the end the treasury would collect less in taxes rather than more. 

This is the difficult dance that Obama has attempted to perform.   As we know from this past election Obama demonized the rich by going after one of their own ... Mitt Romney.  He cannot take back all of his rhetoric and negative ads and expect the golden goose to which he has beaten over the head time and time again to lay its golden eggs at his feet.  Instead it may spurn his requests and make him go without.

But wait a minute you say, "We've seen many rich people saying they would gladly pay more in taxes.  So maybe they don't feel so badly about the president"

To me, however, the rich can be divided into 2 camps:  earners and non-earners.

Earners:
   - Business owners and CEO's
   - Entrepreneurs
   - Inventors
   - Capital Investors

Non-earners
   - Hollywood stars
   - Sport Athletes (NBA, NFL, MLB etc)
   - Musicians and Singers
   - Hedge Fund managers




Now looking at those 2 lists you may be thinking.. "CEOs??"    Yes they do earn the money they are  paid.  Did they just wake up one day and say "Make me a CEO!" ?  No.  Many worked their way up through the manager ranks and VP levels to prove their ability to manage large groups of people and large budgets.  They make the big decisions like:

- Where to build (or close)
- What to make (or not make)
- When to hire (and when to fire)
- When to split stocks (or buy them back)

Those who fill out the non-earners ranks of course do work hard at what they do, but often they do not make decisions that effect the lives of 1000's of people and while they may give us a few minutes of enjoyment, they do not move the world forward and give us more stuff to put under our proverbial "christmas tree".   The non-earners are of course MORE than happy to give up more of their NON-EARNED-INCOME to the government for that which is not earned is not appreciated whether that be a welfare check or a big-paycheck from a movie studio.

What about the sub-millionaires?  Those making $250K or more?   They can't live on their acquired wealth as well so won't they be paying more in taxes? 

To a point yes.  But we will not go unscathed because most of these are small business owners who will either make up for the higher taxes either by charging more for their services or by laying off some of their workers to increase their profits.  Either way, everyone will be paying these taxes and not just the top 1 or 2 percent.