Raising taxes on just 3% of the richest people in the U.S. is a pretty politically convenient concept to champion. After all, 97% of people won't be directly affected. But the action could make them worse off indirectly, if a double dip recession results. In one of the more even-handed opinion pieces I've read in a while, Chief Economist of Moody's Analytics Mark Zandi argues for a balanced approach, where the cuts are extended to the rich for just one more year, until the economy is stronger. Here's why:
In most times, raising taxes on the wealthy by such a modest amount has had little impact on the economy. But these aren't most times. The well-to-do appear unusually sensitive to changes in their finances, probably because their nest eggs are significantly smaller with the drop in stock and housing prices. Only the top 3 percent of households would have to pay higher taxes if the president got his way, but this rarefied group currently accounts for a fourth of consumer spending. If they pull back, even a bit, the recovery could be derailed.
Successful small-business owners, who power the nation's job-creation machinery, make up one-third of these high-income taxpayers. They have set up their businesses so that their profits are taxed at personal rates. Raising marginal tax rates, even a little, on those who have suffered during the past several years would be a mistake.
Some of those reasons may sound familiar, but it's nice for Zandi to provide statistics to make the potential harm more tangible.
Read the full story at the New York Times.