Class Warfare, Tax Rates, and the Laffer Curve

Obama imposed higher tax rates on the so-called rich as part of his government-run healthcare scheme, and he wants to punish success with additional tax rate increases at the end of this year. This excerpt from a New York Post column comments on how many people are getting a free ride from the tax system, but then goes on to explain why a spiteful policy based on class warfare will backfire:

Nearly half of American tax filers didn't have to pay any federal income tax last year. But Americans -- especially New Yorkers -- shouldn't enjoy the free ride. Soon enough, everybody will pay for the higher spending that Washington's "generosity" encourages. And thanks to Washington, we'll be paying for higher state and local spending at the same time, too. Just a decade ago, two-thirds of American tax filers still paid into the tax system. ...everyone should have to pay something -- and anyone who earns enough to have cable TV can pay something toward their own national defense, too. A big majority of people, in fact, should pay enough to be annoyed on April 15 rather than excited. Otherwise, the politicians will figure they can just keep spending without angering a critical mass of voters. ...seems certain to let the Bush tax cuts for upper-income Americans expire -- so in January the top rate will jump back to 39.6 from 35 percent. Two years later, a new 3.8 percent tax kicks in on investment income earned by families who make $250,000 and up (part of the health-care bill). Thing is, the rich already do pay. And when it comes time to pay for all of the spending we're doing now, the rich may not be able or willing to pay even more. Taxpayers earning over $200,000 paid more than 54 percent of federal income taxes in 2007, way more than the 32 percent of the nation's income they earned. ...there's a limit to how much the government can get. Last year, New York hiked income taxes on people who earn more than $200,000. But, as E.J. McMahon of the Empire Center for New York State Policy noted last month, the expected take from that tax hike seems likely to come in half a billion below estimates. There's good reason to think Obama's tax hikes on the rich will fall short, too. No, federal taxpayers can't leave the country as easily as a handful of Bloomberg's Upper East Side neighbors can leave New York -- but they can park more money in tax-free investments or simply decline to earn it in the first place. Such tax-avoidance is perfectly legal -- but it means less economic growth, and thus less income earned by everyone else.