It is a known and accepted fact that Barack Obama’s preferred policy with regards to tax is to increase the liability of the wealthy, while easing the burden which rests upon the shoulders of low and middle income households. This is a measure that is apparently well supported within the US government, with a vast majority of Republicans, Democrats and Independent representatives all in agreement that individuals or households who earn more than $250,000 per year should bare the brunt of plans to reduce the national deficit.
Not only this, but US citizens also seem to agree that this is the most positive step that their government can take with regards to taxation. The New York Times recently revealed in a poll that an estimated 72 percent of adults approve of increasing federal taxes on households earning $250,000 per year or more, which is a significant portion of the voting demographic in the US. Though this suggests that the government and its subjects are in accordance, there are economic and ethical issues concerning such a practice within a free and democratic land.
A Thriving Economy
From a purely practical standpoint, there are two significant reasons why increasing the tax liability of the rich would be either inconsequential or potentially detrimental to the economy. Firstly, given the effects of the global recession and subsequent recovery, there are a paucity of individuals and households who earn more than $250,000 in the US. This means that by targeting this demographic as opposed to imposing a small percent age increase on each level of household income, the government will acquire far less reveneue over the next decade than they have the potential to.
The second issue with this practice is its questionable benefit over a significant period of time, as it can have a profound effect both on consumer spending and the stability of the economy. The top 2 percent of earners within the US contribute much in the way of expenditure and reinvestment into the economy, and increasing their tax liability merely serves to acquire money in one way while restricting their government contributions in another. In addition to this the highest earners in a nation are usually the first to be hit during a recession, meaning that either redundancy or unemployment could take hold and deprive the government of these significant financial contributions.
Ethical Practice in a Democracy?
Aside from these significant practical concerns, there is the wider and more sweeping issue of democracy and the freedom that it affords to its citizens. The US is renowned as a nation with largely capitalist values, which encourage independent success and entrepreneurial aspirations. These freedoms of trade and movement are integral to the history of the nation, and are supported by a democratic rule that actively promotes liberal activity and enterprise. It is these principles which mark the country as a land of opportunity, and ensure its popularity amongst those with ambition who wish to take control of their own financial future.
Given the importance of these values and the role that they play in the structure of the US, it seems entirely undemocratic to apply a significant tax increase to those who achieve high income and financial independence. By encouraging the freedoms of trade and enterprise and then imparting sanctions on individuals who seek to take advantage of them, the government runs a serious risk of muddying the waters of their democracy and sending conflicting messages concerning their attitudes to individual success and growth.
Taking a More Considered Route to Prosperity
Whether you consider these issues as a group or individual concerns, it becomes clear that increasing the tax liability of the rich may be something that could ultimately prove to be divisive to the US economy. Though it may provide some short term relief for low and middle income households, and also generate some reduction to the estimated $1.5 trillion US budget deficit for 2011 and 2012, it is something that can neither be reliably sustained or make a significant impact on the national debt over the coming years.
Instead, the US must consider a more patient route towards prosperity, and one which can also be realistically maintained regardless of the economic circumstances that befall the nation. By implementing a small increase on taxes across the whole of society, the government have a far better chance of creating a significant sum of revenue whilst making only a minor impact on each demographic and individual. While this may not be welcomed as popular by the majority of US voters, it is perhaps the resolution that offers the most suitability in terms fairness and maintaining democratic values.