Monday, July 13, 2009

Quick Thought about the Surtax

The primary Republican argument against the surtax is that people making over $200,000 drive the economy by owning small businesses. Taxing these people cuts into their ability to expand (or even tread water), and thus keeps the economy from growing.

No doubt that's true. In part. Full reliance on that generalization would ignore two important aspects of the situation: the first is the number of rich Americans who do not own small businesses, or own small businesses for tax reasons; the second is that government spending is responsible for major parts of the American economy. Indeed, at least some part of that spending is better (ie, representing purer pursuits with more long-term and potentially widely useful goals) than what Americans tend to spend their money on.

The debate can be summarized as "Surtax on the rich" vs. "Big government taxing small business owners." But the real question isn't which is better or worse in the abstract. It's which is more efficient? And wouldn't that be empirically assessable? There should exist determinable numbers that could give us a strong sense of where we stand, and I haven't seen them referenced anywhere.

Two key questions for which I want detailed answers:

1. How many small business owners make over $200,000, and at least approximately how much do they contribute to the economy? estimates that only 2% of small business owners make over $171,551 (the cutoff for the second highest tax bracket). But that isn't enough: what percentage of that 2% are simply more successful than average, and what percentage are just extremely wealthy Americans trying to write off big purchases as business expenses?

2. How efficient are our tax dollars? The government is enormously complex, but all but a tiny percentage of its money is transparently published.

Once we know that, the process is simple:


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