March 28, 2024

Obama’s Tax on Millionaires

Britain and France have imposed new taxes on their highest earners — and Italy, Spain, Greece and Japan are considering similar moves, despite some protests.

Whether the taxes on the rich in Europe raise enough money to close much of their budget shortfalls, they are being promoted as a step toward economic fairness at a time when governments are cutting spending on social programs like pensions, health care and education. Mr. Obama — whose millionaire’s tax would probably raise a modest amount of revenue over the next 10 years by collecting more from several hundred thousand Americans — has also framed his plan as a way to make the system more equitable.

Specifically, the proposal would counteract decades of tax reductions for most Americans that have given the wealthy the most benefit.

But the idea being embraced by much of the world faces strong opposition in the United States from Republicans and other conservatives who say it would harm the economy and cost jobs.

“Other countries explicitly use the tax system to redistribute resources in society,” said Reuven S. Avi-Yonah, a professor at the University of Michigan and expert in international tax law. “But going all the way back to no taxation without representation, Americans have had a mistrust of government. So we tolerate a greater inequality in terms of wealth. There is more opposition to tax increases, even when rates are low. And there is less confidence that government will use the money wisely.”

Still, there are some indications that Americans may be more open to tax increases on the affluent. One recent poll by The Associated Press and CNBC found that Americans feel they are less likely to become millionaires, making them more willing to embrace a tax on that group.

The initiative also echoes a populist chord sounded by Warren E. Buffett, the billionaire investor who has publicly complained that the American tax system allows him and some other wealthy individuals to pay a lower percentage of their income in federal taxes than their secretaries do.

Whether a higher tax rate would stifle business and economic growth continues to be debated. Britain raised its top tax rate to 50 percent after the 2008 financial crisis, and a number of economists and others have said that it inhibited investment and hiring. They are asking that the issue be reconsidered if the additional money generated proves less than projected.

Spain, Greece and Italy have less room to maneuver. They are under external pressure to raise tax rates and reduce spending to help meet targets for debts and deficits imposed on all members of the euro zone. To continue to raise money in the international financial markets, these countries have taken a number of steps painful for their citizens. Adding a 3 percent “solidarity tax” on the wealthy, as Italy is considering, reminds the voters that everyone is sharing the pain.

Until the recent financial crisis and worldwide economic downturn, individual tax rates had fallen substantially in most developed countries over several decades. In 1980, the top federal rate on Americans was 70 percent, and most European countries were above 60 percent. Today most European countries have rates below 50 percent. The United States has a top rate of 35 percent, but many wealthy Americans pay considerably less because their earnings are derived from dividends or capital gains, which are taxed at no more than 15 percent.

As a result, the effective federal tax rate, including payroll taxes, for the wealthiest 0.01 percent of earners fell to 31.5 percent in 2005, from 42.9 percent in 1979, according to data from the Congressional Budget Office. Over the same time, effective rates for taxpayers in the center of the range fell to 14.2 percent, a decrease of just 4 percentage points.

Article source: http://feeds.nytimes.com/click.phdo?i=4d7e0b7971f7b7262c048098c946d571

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