Talking Twinkies and Taxes

As Americans have been mourning the possible loss of their beloved Twinkie, many in political circles have been quick to point fingers.  People on the right were quick to say this is what happens when organized labor runs the show.  Unions and people on the left have blamed….Mitt Romney?  Never the less, one liberal has taken it a step farther and used America’s love of the Twinkie to push tax increases and his own liberal ideology.

In a recent article for the New York Times, Paul Krugman talks about life in the 1950’s, the era of the Twinkie, and how many Americans today long for the simplistic life of yesteryear.  However, he quickly turns these nostalgic feelings about a “simpler life” into a rant against the right:

“The ’50s — the Twinkie Era — do offer lessons that remain relevant in the 21st century. Above all, the success of the postwar American economy demonstrates that, contrary to today’s conservative orthodoxy, you can have prosperity without demeaning workers and coddling the rich.”

Nice way to switch from Twinkies nostalgia to pushing a liberal agenda.  He goes on to say:

“In the 1950s incomes in the top bracket faced a marginal tax rate of 91, that’s right, 91 percent, while taxes on corporate profits were twice as large, relative to national income, as in recent years. The best estimates suggest that circa 1960 the top 0.01 percent of Americans paid an effective federal tax rate of more than 70 percent, twice what they pay today.”

The whole point of his article was to say that during the post-war era of the 1950’s, life was good and the economy was strong, and it was all possible even with insane tax rates and with organized labor in charge of most of the work force.

When I read this article I was in complete disbelief.  Could Paul Krugman, a supposed economist, really be so stupid as to believe that in today’s society, wealthy Americans would actually pay such an insane tax rate?  Does he actually think that intelligent business people would allow the government to take almost all of their money?  If he does he must be living in La-la Land because wealthy Americans of the 21st century do not have to play by the same rules that they had to play by in the 1950’s.

First of all we live in a global economy.  If an American company doesn’t want to pay the insane rates that organized labor demands, all they have to do is move overseas.  We have seen this over and over and over again in the last decade.  Why would a company stay in America and pay American workers exorbitant rates when they can move overseas and pay foreign workers cents on the dollar to what they have to pay in America?  The answer is:  they won’t.

Secondly, wealthy Americans today know how to keep their money.  Most likely that is how they got to be rich in the first place so raising their taxes is going to be little more than a slight pain in the rear.  They will simply move their money and their residences overseas to a more “money friendly” locale and voila no more high taxes.

So what happens when these wealthy Americans move their money and residences overseas?  Less revenue for the government, less money being pumped into the American economy, and less jobs for American workers.

Some people may believe that wealthy Americans wouldn’t go to so much trouble just to protect their money.  However, all they have to do is look at what happened to Great Britain when they raised their top tax rate to 50%.  According to a recent article in the London based newspaper, The Telegraph, the number of people filing tax returns with an income above 1 million pounds dropped by two-thirds after the government increased their tax rate.  The article said:  “In the 2009-10 tax year, more than 16,000 people declared an annual income of more than £1 million to HM Revenue and Customs.This number fell to just 6,000 after Gordon Brown introduced the new 50p top rate of income tax shortly before the last general election.”

It is believed that rich Britons moved abroad or took steps to avoid paying the new levy by reducing their taxable incomes.

Not only did Great Britain’s tax increase fail to increase revenue – their revenue actually decreased by 6 billion pounds (or $9,611,400,000).  So how could any Washington bureaucrat look at numbers like these and still say that the only way to fix America’s money problem is to raise taxes on the rich?  Your guess is as good as mine.

However, what I do know is that the President and Congress, Republicans and Democrats, need to look long and hard at their “fiscal cliff” decisions before jumping onto the “tax the rich” bandwagon. We don’t need history to show us that they would be making a mistake, and we don’t need large scale studies to tell us it would be a mistake – all we need to do is look across the pond and we can see the results in real time.

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