President Barrack Obama's proposals for a 30 percent tax on those earning $1 million a year or more won't work, as the rich will find ways to move their assets to more tax-friendly venues, writes Randall Forsyth, a columnist at Barron's.
Many wealthy Americans pay less taxes — around 15 percent in total — than do middle class Americans because their incomes come from investments, often in businesses that are already taxed.
"Dividends are paid out of after-tax corporate income that already has been taxed at rates as high as 35 percent. Capital gains are generated by income from investments, which come out of savings. The savings come from income that already has been taxed but not spent," Forsyth writes.
If those taxes are subject to increases, wealthy Americans will look elsewhere to put their money.
"Whatever they do, they won't stand still. Rich folks have the flexibility to rearrange their affairs, unlike working stiffs. So, they pick up stakes and move from high-tax states to low-tax domiciles," Forsyth writes.
"And they have accountants, lawyers and other advisers whose livelihood depends on helping their affluent clients keep what they have out of the clutches of the tax collector."
A better alternative would be to overhaul the tax code and keep it lower for all but give it broader reach.
"That was not on the agenda of the State of Union, however," Forsyth says.
Republican presidential hopeful Mitt Romney, who has revealed he pays less than 15 percent in taxes since his income stems from investments, says the proposal won't work and will actually hurt the economy instead of helping it.
"The question is whether we're going to eliminate the capital gains tax break," Romney says, according to CNBC.
"So if you say we're going to raise that dramatically, you're going to choke off a lot of the capital that goes into creating new enterprises and creating jobs. It's the wrong way to go."
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