The 'rich' are poorer and will pay less taxes

Robert Samuelson:

For years, we've debated rising economic inequality. On one side, liberals denounce it as unjust. Redistribute wealth to the poor and middle class, they say. On the other, conservatives minimize its importance. What matters most is overall economic growth, they retort. Well, the conjunction of the presidential campaign and the financial crisis is giving the debate a curious twist. Liberals have triumphed politically; soaking the rich has become more acceptable. But conservatives may have won the intellectual argument; making the rich poorer doesn't make everyone else richer.

If Barack Obama and John McCain agreed on anything, it was this: Greed is bad. They competed in denunciations of reckless investment bankers and avaricious CEOs. Obama proposed raising taxes on higher incomes (couples making more than $250,000); though McCain didn't, he suggested that much recent wealth accumulation was ill-gotten. Unintentionally, perhaps, he buttressed the moral case for more redistribution. Let's tap the gold mine of the rich.

Unfortunately, the mine has less gold. All the financial turmoil has left the wealthy -- however they are defined -- much less wealthy. Stock ownership is highly concentrated. In 2001, the richest 1 percent owned 34 percent of stocks and mutual funds, estimates economist Edward N. Wolff of New York University. Let's see. Since the market's high in October 2007, stocks are down (through Oct. 31) 38 percent, or $7.5 trillion, reports Wilshire Associates.

That will mean lower capital gains taxes, because capital gains -- profits on the sale of stocks and other assets -- will plunge. In recent years, capital gains taxes have been running at $100 billion or more. That amount could drop sharply, even if the top rate on capital gains were raised from 15 percent to its pre-2003 level, 20 percent.

Thousands of well-paid investment bankers, traders, portfolio managers and securities analysts are losing their jobs. Though Wall Street bonuses will continue, their total is likely to decrease. Gains in executive compensation may be similarly squeezed. Profits are down; the political climate is hostile. In 2005, the richest 1 percent of Americans had 18 percent of total income and paid 28 percent of all federal taxes, according to the Congressional Budget Office. Their income won't grow much. Even if higher tax rates increase government revenue, the effect will be less than before.

Judged only by economic inequality, the financial crisis is a godsend. It will probably narrow the gap -- though still vast -- between the rich and everybody else. But what good will that do? Economic inequality also declined in the Great Depression. The country wasn't better off. By and large, the poor aren't poor because the rich are rich. They're usually poor for their own reasons: family breakdown, low skills, destructive personal habits and plain bad luck.

...

Poor people do not create jobs except for the government bureaucrats who have to take care of them. Few people ever become rich by taking money from the poor. The exceptions are probably dope dealers and pimps.

That top one percent that Democrats want to tap got rich by creating goods or services that other people were willing to pay for. Taxing them more will only make that more difficult and will reduce their ability to add jobs.

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