The problem with raising taxes on the "wealthy" and "large businesses" is that they will just pass the tax on to us. They'll respond by raising prices and cutting payroll. They will have less opportunity to create new jobs. They will also employ less people to build their mansions, cook their meals, and take care of their houses. They will be less likely to take risks involving new, unproven, innovative products and expanding their businesses. They will buy less cars and extra houses, and everything else that they don't need, which will be bad for the economy. There will be less people wanting to come into the country to do business, and more people wanting to leave.
If we raise taxes, the economy will go to hell. We've all heard that before. In fact, we actually did raise taxes primarily on the wealthy back in 1993. Remember what critics said?
"Clearly, this is a job-killer in the short-run. The impact on job creation is going to be devastating."
â€”Rep. Dick Armey, (Republican, Texas)
"The tax increase willâ€¦lead to a recessionâ€¦and will actually increase the deficit."
â€”Rep. Newt Gingrich (Republican, Georgia)
"I will make you this bet. I am willing to risk the mortgage on itâ€¦the deficit will be up; unemployment will be up; in my judgment, inflation will be up."
â€”Sen. Robert Packwood (Republican, Oregon)
"The deficit four years from today will be higher than it is today, not lower."
â€”Sen. Phil Gramm (Republican, Texas)
Yes, those were scary times. Remember the recession of the 1990s? Remember how the deficit exploded, unemployment went up, inflation went up? Wow, those were... waitaminute, what actually happened?
Tax on Wealthy Is Boosting U.S. Revenue
President Clinton sold the 1993 income-tax increase as a way to shrink the budget deficit at the expense of the rich.
Republican adversaries predicted it wouldnâ€™t generate much revenue because the rich would work less and take bigger deductions. Now thereâ€™s growing, if still tentative, evidence that Mr. Clinton may have been right after all.
The recent flood of revenue pouring into Treasury coffersâ€”enough to push the federal budget to a record $93.94 billion surplus for the month of Aprilâ€”appears to have come mostly from the nationâ€™s biggest earners, indicating that the controversial tax increase may indeed be taking from the rich. "The available data suggest the surge in tax collections has come from the taxpayers with high incomes, who were the only ones affected by the 1993 changes," says Deputy Treasury Secretary Lawrence Summers.
Corporate taxes, which were increased modestly under the 1993 law, also have brought in more revenue, but at about the level the Treasury had been predictingâ€¦
"The basic fact is that people looked at the 1993 budget agreement and said thereâ€™d be a recession, the deficit would go way up and that tax collections would go way down," says Mr. Summers. "What has happened is there has been a boom, the deficit has gone way down and tax collections have gone way up."
â€”WALL STREET JOURNAL, May 22, 1997, A2.
So I'm curious; if raising taxes on the wealthy is so bad for the economy, why wasn't there a recession in the 1990s? Yes, we can surely mention that Internet bubble and "irrational exuberance." But it doesn't take away the fact that taxes went up on the wealthy and the economy did not nosedive. Taxes went up and all the terrible predictions did not come to pass. The sky did not fall, and America survived. So why would it be oh so bad now?