Capital Formation and the Fiscal Cliff | The Big Picture.
John Mauldin’s weekly letter is always worth reading and he doesn’t disappoint this week. I want to focus on a small portion of his letter dealing with capital availability in lieu of higher taxes on the wealthy.
It is my opinion that taxes will rise for those that earn $250,000 a year and higher. Decades of class warfare perpetrated by jealous, envious leftist has created a near-constant hostility towards those that have succeeded in life. While they all yearn to be rich, they openly despise the rich. Despite data showing that the wealthy pay far more in taxes than everyone else combined, they are still not paying their “fair share”. Politicians know this. That’s why Obama is out there saying they need to pay their fair share. It’s even more pathetic when the wealthy, like Warren Buffett, call for even higher taxes on millionaires.
Higher taxes reduces available capital. It’s that simple. Mr. Mauldin gives an example of a typical millionaire. Currently, a $1 million income after all taxes would leave that person with an income of $600,000 a year. The person spends $300,000 on his lifestyle, which leaves $300,000 for savings and investment. That is $300,000 in capital for use in the economy.
The government raises his taxes by 5%. It doesn’t sound like a lot, and as Mauldin states, it is probably less than what is being discussed in Congress right now. The millionaire maintains his $300,000 a year life style, but now only has $250,000 to save and invest. As Mauldin states, $50,000 has been taken out of the economy and into the bottomless pit of Washington, D.C.
For pundits, economists and other so-called experts to say raising taxes on the rich will not affect economic growth, is ludicrous. That money is now part of the “general revenue.” It will not go into the economy for jobs, businesses, capital and growth. It will go to pay the salary of yet another government paper pusher. Over time that $50,000 adds up. Add hundreds of thousands of millionaires and now we’re talking serious money!
Higher taxes hurt everyone, at all income levels. We have less money in our pocket. We have less to spend and less to save and invest. It goes to Washington where it is squandered on wars and waste. They say we have to invest to help those in need. But charity at the point of a gun helps no one.
Congress and the president will stick it to the rich to avoid going over the cliff. In the end, they will stick it to all of us as we all plummet over.
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About Ryan Taylor
