This raises an important point about steeply progressive income tax rates, which are so strongly supported by liberals. For every $1 increase in income by the wealthy, the government gets about 35 cents. So when the wealthy do well, so does the government. That is why the share of total income taxes paid by the top 2 percent of taxpayers -- those targeted by Kerry and Edwards -- was 41.3 percent in 2001, according to the Internal Revenue Service, though their share of total income was 22.4 percent.
But this means that the converse is also true. When aggregate incomes fall, those of the wealthy are going to fall the most, meaning that federal tax revenues are going to fall much more. Even in taxation, it?s live by the sword and die by the sword. For this reason, many economists favor a flat rate consumption tax to smooth tax collections. Since consumption varies less than income over the business cycle, government revenues would be far more stable from year to year, rather than skyrocketing up when times are good and collapsing when times are bad.
Kerry and Edwards seldom ever explain that their plan to raise taxes on the top 2 percent of taxpayers means higher taxes for those making $200,000 per year, a good income to be sure, but one that few Americans likely would classify as ?rich.? With overtime, many cops and firemen make close to $100,000 per year. If they have a working spouse, they are probably in the top 5 percent and within shouting distance of being in the top 2 percent. And even if they themselves never get to that income level, they hope that their children will.
Thus the basic problem with scapegoating the rich for every problem in society, as Kerry and Edwards do, is that far more people identify with the rich than they imagine. Sophisticated liberals know this. As Bob Kuttner, editor of the left-wing American Prospect magazine, recently wrote in the Boston Globe, ?Because nearly everyone identifies upward, you don?t gain traction in American progressive politics by baiting the rich.?
Kerry and Edwards don?t seem to have gotten the message.