Saturday, February 8, 2014

Economics 101: Does raising taxes lower the income gap?

Obama continues to argue that we need to create more fairness between the rich and the poor.  He said it's "unfair" that the rich make so much money while the poor are poor.  He says in order to resolve this problem he must raise taxes on the rich.

However, there is evidence that raising taxes actually makes the income gap between the rich and poor even worse.  Consider a report by the Center on Budget and Policy Priorities (CBPP), which released a report 'Pulling Apart: A State-by-State Analysis of Income Trends.

The CBPP used Census Bureau data to determine which states had the largest gap between the bottom fifth of income earners and the top 5% of earners. According to CBPP, the states with highest levels of income inequality are:
  1. Arizona
  2. New Mexico
  3. California (top marginal tax is 13%)
  4. Georgia
  5. New York
Ironically, all of those states had the highest taxes among states.  In other words, these states were listed by Forbes magazine as death spiral states, or states with the most aggressive tax systems.

If higher taxes improved income inequality, then these states would have the lowest income gap of any other states.  But they don't: they have the greatest income gaps.  This is proof that high taxes does not create equality among the people.  

So, if Obama is aware of this fact, of which we should assume he is (or should be), then we must assume he has some other agenda by raising taxes.  What is this agenda?  Might it be that he wants the system to collapse?  I don't know, but I'm just wondering here.  

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