You are familiar with the Robin Hood story; Robin Hood is portrayed as “robbing from the rich and giving to the poor” alongside his band of “Merry Men”. President Obama new tax proposal is to take from the rich and give to the rest as part of his tax reform plan. In summary the tax proposal, to be presented tomorrow in his State of the Union address, would raise taxes on capital gains and close various breaks for the wealthy.
According to the president, it will help finance education, family and retirement benefits for those further down the income ladder. At the center of his proposal is the increase of capital gains tax from 20% to 28%. According, to the “Merry Men” in Washignton this proposal will affect the top 1%.
The capital gain tax rate arbitrage gives some taxpayers an edge. Currently, capital gains are taxed at a maximum rate of 20%, while ordinary income (i.e. wages) has a maximum tax rate of 39.6%. The larger the gain one reports, the greater the tax break – that differential between the cap gain tax and the ordinary tax is gold.
Is it fair to steal from the rich and give it to the poor?
Maybe stealing is not the right word. So let me ask you, is redistribution of wealth good for our society?
I think the correct answer is, it depends. Redistribution of wealth can be defined as the transfer of wealth from some individuals to others by means of taxation, monetary policies, welfare, land reform, charity, divorce or tort law. Redistribution is not always from the rich to the poor.
Most people associate the redistribution of wealth as something that occurs in socialist societies. However, today income redistribution occurs in some form in most democratic countries. For example, in the United States with our progressive income tax rate system, a high income earner will pay a higher tax rate than a low income earner. Other forms of governmental redistribution of income are subsidies and vouchers. These transfer payment programs are funded through general taxation and benefit the poor, who pay fewer or no taxes.
Redistribution of wealth may achieve a greater good when it provides enough money to the government to fund our priorities. When the objective is the funding of public services. However, when the goal is to raise the tax on the rich because somehow somebody determined that “they don’t deserve it”, then redistribution of wealth becomes bad.