The Book of Job and the 1%

This week the daily first reading is from the book of Job.  It is the story of Job, a wealthy herdsman with a large family, until God allowed Satan to take everything away from him, including his health.  Despite the disastrous events in his life, Job refused to curse God for the calamities he suffered, even though the prevailing belief at the time was that setbacks like his were the result of God’s punishment.  Job was clearly among the 1%.  He was wealthy by the standards of his time, the patriarch of a large family, and the employer of many who relied on him for their income and sustenance.  He was ridiculed by his friends for his refusal to blame God for his misfortune, but Job never gave in to despair.  Losing everything, including his family and friends, Job adamantly remained faithful and respectful of God, much to Satan’s disappointment.  Although the book of Job is not considered historical in nature, it is instructive in many ways.  Job’s losses impacted his family and no doubt, the local economy.  Nobody was better off when Job lost everything, in fact, many probably shared in his suffering.

With the US economy struggling to recover, and unemployment rampant, a lot of criticism has been directed at the wealthy, or the “1%,” as if redistributing their wealth would solve all our economic problems.  A year ago the Occupy Wall Street crowd declared themselves the 99% and railed against the unfairness of the 1% growing richer, while the ranks of the unemployed swelled.  Media rhetoric has further confused the issue by giving so much attention to the false impression that if the wealthy would just pay their “fair share” of taxes, employment would rise, poverty would decline, and all would be well with the world.  In fact, redistributing wealth would do none of these things. 

The top 1% of income earners are comprised of approximately 7 million American families.  They pay an average federal income tax rate of 29.5% which amounts to 40% of all taxes paid.  Included in these numbers are much smaller number of “super-rich” who pay less tax because they take their income as long term capital gains and dividends which are taxed at 15%.  These super-rich make up less than 10% of the top 1% and are comprised mainly of highly paid CEOs, sports figures, Hollywood stars, and those who inherited wealth.   Even if they were taxed to the hilt, it wouldn’t make a noticeable dent in the federal deficit.  Taking them out of the equation, 90% of the 1% are those who earn more than $250,000 a year and pay federal taxes greater than 30% of their income.  Add in payroll, state, and local income taxes, and most are being taxed at 50% or more of their income.  This group is made up doctors, lawyers, small business owners, senior managers, IT professionals, and those who have special skills.  This is a hard-working group of people who have earned their income by getting a good education, learning special skills, working long hours, and investing hard-earned capital to start businesses.  Raising the taxes on this group will do little to reduce the national debt, but it will dampen the prospect of creating new jobs because it reduces the amount of money people spend or invest in growing their businesses. 

If the Bush tax cuts are allowed to expire, the 1% whose income is taxed as ordinary income, rather than long term gains, will see their federal income tax go up about 3%.  In addition, their payroll taxes will increase by about $2200, and the tax provisions of Obamacare will increase their Medicare payroll taxes an additional .9%.  For a person making $300,000 this amounts to about $1200 a month.  That’s $14,400 a year in additional federal taxes which will not be spent in the economy or invested in growing businesses.  History shows that every time federal rates are lowered, federal revenue INCREASES.  This paradox is just simple economics.  When people pay less tax, they have more money to spend and invest.  When people spend more money, it passes through five or six different hands in the course of a year (the “multiplier” effect).  That $14,400 can add $70,000 to the economy in the course of a year.    Increased consumer spending creates more income, more jobs, and with it, more tax dollars.  This upward spiral grows the Gross National Product and along with it, tax receipts for state and federal government.  President Reagan lowered taxes three times in eight years and each time, federal tax revenues increased because GNP increased.  This resulted in a robust healthy economy that yielded more than 12 years of continuous economic growth.  Despite this success, his detractors derided “Reagonomics” as faulty “trickle-down” economics.  President Clinton rode the wave of this success through his entire presidency, but Democrats still refuse to acknowledge Reagan’s contribution.

The real reason for our high unemployment has to do with education, job training, burdensome regulations, and the uncertain economy.  Consider this: The unemployment rate for people with college degrees is 4.9% and only 2.9% for people with advanced degrees.  For those with high school diplomas, the rate is 9.4% and for those without, 14%.   According to Fortune magazine, there are 3 million job openings that remain unfilled because companies cannot find people with adequate job skills.  Despite all this, we allow people to remain on unemployment compensation, without requiring them to participate in job training programs.  The real reason for high unemployment is that unskilled labor is cheaper in foreign countries than it is in the US, and there are not enough people with the right job skills to fill job existing job openings.  In addition, uncertainty about taxes and the economy prevents employers from investing in their companies.  The vast majority of American firms are profitable, but a great many are sitting on cash rather than grow their business because they are so uncertain about the future.  Government regulation has expanded exponentially over the past four years adding complexity, bureaucracy, and tax burdens to the cost of doing business.

At the end of the Book of Job, God restores Job’s good fortune and he rebuilds his life.  Punishing those who have worked hard to achieve success, damages our economy by stifling growth.  We most definitely need to solve the problem of our national debt, but the answer lies in reducing spending and stimulating economic growth, not by taxing people who are the most vibrant participants in the economy and thereby suppressing consumer spending and investments in the private sector.