There are several reasons why most people believe that billionaires and multimillionaires should pay more income taxes.
For those who believe in fairness, it isn’t acceptable for the rich who have the same income to pay income taxes at a rate of 39.6 percent if they work for a salary but only 20 percent if they sell their stocks.
At present, the people with capital gains pay at the lower rate, but it would be no less unfair if the people who worked for their money paid at the lower rate.
Either way, the ones who pay at the lower rate will have extra money to invest, but billionaires and multimillionaires don’t tend to invest in small businesses. The extra money needs to be in the hands of small business owners and consumers in order to create new jobs.
It would be fairer if both types of income were taxed at the same rate (e.g., 30 percent).
For those who derive their moral principles from the Bible, they should recall the following saying of Jesus (Mark 10:25): “It is easier for a camel to go through the eye of a needle than a rich man to enter the kingdom of heaven.”
This might motivate some rich people and their enablers to support higher taxes.
For those who believe that the stability of our government is not guaranteed, there are some ominous conditions that should be noted.
The total wealth possessed by the richest 1 percent of the population is estimated to be between 33 percent and 40 percent. In the last three decades the percentage has increased by a factor of three or four.
In the foreseeable future this may exceed 50 percent and the richest 3 percent may possess much more than 50 percent. Under such conditions, the government might be destabilized by a large increase in unemployment and inflation. The inflation rate was 50 percent in Iran at the beginning of its revolution.
For those who fear that in the near future the government will be unable to provide the needed services, please note the following: As the national debt increases, the interest that must be paid also increases.
There is reason to believe that when the interest becomes a large fraction of the national budget, it will be impossible for the government to continue to provide the essential services.
I believe that the majority will support the following changes for at least one of the above reasons:
The capital gains tax should be increased to 30 percent for incomes over $1 million (Warren Buffett’s plan), eliminated for those below $200 thousand (Mitt Romney’s plan) and kept at 20 percent for the rest.
Joseph E. Willett is a professor emeritus of physics at MU.