When the Rich Get Rich the Poor Get Rich

Income gap

An exchange between George Will and the economically challenged Robert Reich was delightful. Reich, who served in the administrations of Presidents Gerald Ford and Jimmy Carter and was Secretary of Labor under President Bill Clinton from 1993 to 1997, wants to raise taxes on the rich to narrow the gap between rich and poor.  Here is some of what Reich said:

There was, under President Dwight D. Eisenhower, whom nobody accused of being a socialist, a marginal tax rate at the top of 91 percent. I’m not advocating we go back to 91 percent. I’m just saying that for conservatives to say that we cannot tax the wealthy, when all of the nation’s wealth and income, virtually speaking, is at the top, to invest in people and education and training and everything else we need to invest, it’s absurd on its face.

Reich does not mention that the liberal icon of the Left JFK proposed legislation to reduce taxes on high level earners. The Revenue Act of 1964, also known as the Tax Reduction Act, was a bipartisan tax cut bill that was signed by President Lyndon Johnson on February 26, 1964. Individual income tax rates were cut across the board by approximately 20 percent.

There is another fact that Reich failed to mention. “When the top rate was 91 percent under Eisenhower . . . the total taxes collected was far less in those days than it is now.”

Reich, like all liberals, believes that the rich are getting rich on the backs of the poor. You don’t have to be a trained economist to figure out what’s wrong with his logic.

Let’s say John has $50,000 to invest and Peter has $100,000. They each earn 5 percent interest on their respective investments. If the interest rate does not change and they never invest another dollar, in ten years John will have $81,444 and Peter will have $162,889.

In both cases, John and Peter are richer. John is richer by $31,444 and Peter is richer by $62,889. The gap between the two is larger, from $50,000 ($100,000 minus $50,000 = $50,000) to $81,445 ($162,889 minus $31,444 = $81, 335), but both are richer by five percent.

Taxing Peter at a higher rate won’t make John any richer; it will only punish Peter and make government richer and the nation less prosperous.

When the rich have more disposable income, they save, invest, and spend it. They are often the first to buy the latest in technological advances. It’s their initial purchase of these high priced items that help lower the costs for everybody else. Today, even the poor have cell phones. Twenty years ago, only the rich could afford them. The same is true of automobiles, homes, medical procedures, clothing, computers, and everything else.

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