How Effective is Obama's Plan to Tax the Rich?

President Obama proposes to tax anyone earning over one million dollars per year at the middle-class tax rate of about 20 percent. This implies that the rich are currently paying less than the middle-class who earns an average of about $50,000 per year. Why is the president not attempting to tax the rich more than the middle-class? It was suggested that the president is fearful that the rich would not create jobs, and invest their money off shore rather than here in the United States.

Are the Rich Creating Jobs Recently?

The belief that the rich are the job creators in the United States is misguided. According to Professor Robert Reich, 99 percent of small business owners account for the new jobs created (robertreich.org). According to Reich, the rich are sitting on two trillion dollars and are not creating new jobs (robertreich.org). Due to the state of the current economy, more and more individuals are becoming self-employed due to the lack of job creation. So if the rich are not creating new jobs, why is the president attempting to give them the benefit of being taxed like the middle class? In fact, it would be more beneficial to tax the rich at the bracket intended because it would create a greater incentive to actually create jobs, as there are numerous tax benefits to creating corporations.

What if the Rich Take Their Money out of the US and Invest Off Shore?

If you recall from my previous blog on the IRS attempt locate funds held in off shore accounts, the IRS has the authority to tax the income of all United States citizens whether it was earned in the United States or abroad. Not only that, anyone who fails to report their off shore accounts are subject to additional penalties. So should the president fear the rich investing their funds elsewhere?  The answer is very clear. Even if the rich does decide to do this, the income that they earn off shore would be taxable.

The real problem exists with the Tax Codes that are currently in place. There are too many loopholes and credits given to the rich that they end up paying a lower percentage in taxes than the middle class. If the president is going to attempt to tax the rich, he should approach this matter based on fairness. The lower and middle class are taxed based on their earnings, and the rich should be also. The various tax brackets were created for a reason, and it is time that they are implemented on everyone. By taxing the rich at the same rate as the middle class, the president implies that the rich now pays less than the middle class. As a middle class individual, I find this to be quite disturbing. I pay my taxes based on my respective tax bracket, and I see no reason why everyone should not be required  to do the same.

However, if the president really wants to be effective in creating jobs in the United States, he should focus on offering some sort of tax credit or tax deduction to individuals for creating jobs, whether rich or poor. This credit should be similar to the tax credit or tax deduction given for donations made to charity. Individuals are always seeking tax write-offs, and this would be a great way to incentivize job creation. When the First-Time Home Owner's Tax Credit was introduced, there was a major boom in the real estate industry. By introducing a Business Owner Credit, the president may realize the same results.

Reference

Reich, R. (2011). "Taxing the Rich, The Obama Way." Retrieved on September 27, 2011 from: http://robertreich.org/post/10360054909.