Friday, May 25, 2012

Do we need to increase taxes on the rich?

Warren Buffett has proposed that we tax the "super rich" more because he is willing to pay more taxes to help the county. The Buffett Rule, as it is commonly called, was introduced and defeated in the Senate.

I read an article today that discussed the proposed taxes on the rich. The premise of the article was that the rich spend money on extravagant things like expensive cars, planes, travel, hotel rooms, clothes, yachts, and etc. If you tax the rich which is actually robbing the rich, the government gets the money and it spends the money any way it wants. This causes wasteful allocation of funds.
However, when the rich spend their money, people are employed to make the product or provide the service. For instance, take a first class airline ticket purchased the day of the flight. It might cost thousands of dollars. The rich person who purchased the ticket was willing to pay more for the convenience of waiting until the last minute to buy the ticket, for having a better meal, for having more comfort, and for having better service.

The last minute purchase of this first class ticket helped to reduce the cost of the tickets for the other non first class passengers, helped pay the cost of the plane, help pay the wages of the airline employees, helped to pay for the cost of providing the plane, helped to pay for the cost of servicing the plane, and help to pay the cost of maintaining the airport.

This is the correct way to allocate funds. Products and services that are provided at a price the people are willing to pay will get purchased and supplied. If the people don't want the product or it is too expensive, it will eventually not be supplied.

In addition, taxation tends to discourage investment which would have a negative effect on our already depressed economy. Also many things that the rich purchased that were considered extravagant later become everyday products used daily by all the people, for example computers or cell phones.

Therefore, we should encourage the rich to spend more money and not increase their taxes. Increased taxes will only reduce their spending and encourage them to horde instead of invest and spend. If people like Warren Buffett feel that they should pay more taxes, they can just send more money to the IRS. I am sure that the IRS will accept it. Better yet they could just donate more to various charitable organizations which would directly benefit the less fortunate helped by that charity.