Taxes on the top 1% Wealthiest Americans ought to be raised.
My Standard Boilerplate
Round 1- Acceptance, Historical Background, and Definitions only.
Round 2- Constructive Arguments only.
Round 3- Free choice.
Round 4- Rebuttals/Defences only.
Round 5- Closing Remarks. No new rebuttals/defences/responses/arguments may be made in this round. You may, however, make fresh cross examinations of points, using your own points.
Any rule violation constitutes an immediate loss of conduct points.
Forfeiting more than 1 round constitutes a full 7 point loss.
The BOP is shared.
Please, do not accept this challenge if you merely plan to challenge the premise of this debate.
I thank my opponent for accepting.
(A) Wealth Disparity, and Economic Growth
The first and foremost point of my argument will deal with wealth disparity in America. In economics, the most common method of gauging the relative disparity present in a country is measured with a system of standardizations known as GINI Coefficients. A GINI coefficient of 0 represents perfect equality (socialism) and a GINI coefficient of 100 represents perfect inequality (totalitarianism). Obviously, both ends of the scale ought to be avoided. Both ends of that scale represent economies where workers cannot thrive, and there is no incentive to work hard or to innovate. The GINI coefficient of the US is just under 50 (1) (2). This may seem like an optimal zone at first glance, but this is not the case. A coefficient of 50 is too high, and restricts economic growth. Empirical evidence shows that countries achieve optimal economic growth when their GINI coefficient lies between 25 and 40 (3). If a country has its disparity in this "Goldilocks" zone (because it is just right) they experience optimal GDP growth. Examine the following chart (4).
As you can see here, there is a distince downward trend in GDP growth as the GINI coefficient approaches 50. (To clarify, the chart uses the 0-1 scale for coefficients. To change to the 1-100 scale, simply multiply the coefficient by 100.)
Raising taxes on the top 1% of America significantly reduces the wealth disparity between the rich and the poor. We know this, because the GINI coefficient of the US has been on the rise since Reagan era tax cuts were implemented. This is demonstrated in the following chart.
Up until the election of Reagan in '81, the GINI coefficient remained at a relatively stable level that was just inside the goldilocks zone. With taxes on the welathiest americans slashed, the GINI coefficient has risen rapidly, and will continue to rise, unless taxes are raised on the rich.
Ultimately, everyone benefits from moving the disparity to the "golidlocks zone", as maximum GDP growth results in maximum wealth for the nation as a whole.
Subpoint I: Median Income Growth, and GDP.
Another reason for increased taxes on the wealthy, is to ensure that median income growth can grow at a rate similar to to the growth of GDP per capita. Median income establishes who has the spending power, and influences change in disparity. Consider the following chart (5)
As you can see, the major tax cuts rendered by President Reagan on the wealthiest Americans resulted in a dramatic gap between GDP growth per capita, and Median income Per Capta. Not only does this increase the disparity (which I proved retards economic growth) but it also shifts the spending power from the many, to the few.
(B) Spending Power
My next major point as to why we should raise taxes on the top 1% of wealthy Americans deals with spending power. Spending power deals primarily with the concentration of wealth. With low taxes on the wealthy, Disparity rises. A result of this is a shift in the spending power from the middle class, to the upper class. The problem here, is that this results in the centralization of power. Shifting the spending power from the middle class to the rich creates a top-heacy economy, that lends itsself to abuse. The wealthy are able to abuse the system more and more as they become wealthier and wealthier. Their voices are much louder in politics than the voices of everyday Americans. They have the funds to keep the government in their pockets. The United States ranks 19th on the national corruption index (6). That is simply unacceptable. We as American citizens should always do everything in our power to minimize government corruption. America should be number 1 on that index.
Furthermore, shifting the spending power to the middle class not only decentralizes power, but it also helps boost the economy. GDP is directly affected by consumer spending. Which class supplies the greatest amound of consumer spending? The middle class. What class is strengthened by higher taxes on the wealthy? The middle class. (7) (8)
(C) Keynesian Welfare
My final points deals with Keynesian welfare. No this isn't the welfare where you just hand someone a check. Keynesian welfare deals with the construction and supply of public services. Raising the taxes on the top 1% allows the government to spend significantly more on the construction and maintenence of services such as public transportation (that includes roads) and public education, both of which help improve the availability of human capital, and therefore improving the economy. Keynsian economics got us out of one depression (1929) it can get us out of another.
I have proved here that raising taxes on "the 1%" will result in greater economic growth and the decentralization of spending power in the economy.
My job in this debate is to make the case that taxes should not be raised on the wealthiest 1% of Americans. I'll lay out my case in this debate and, in the interest of fairness, hold off on responding to my opponent's arguments until later rounds
Higher Taxes on the Rich Would Hurt Growth
Higher tax rates on the wealthy would reduce economic growth. The literature on taxing the rich and economic growth is quite weak. There are studies purporting to look at this question, but they are often little more than looking at a historical correlation between tax rates and growth, which is simply not a very sound research method as it ignores other factors that have larger impacts on growth (among other reasons). To his credit, my opponent did not make the mistaken claim that the lack of correlation between historical top tax rates and historical growth automatically implies no effect. Indeed, there is evidence that higher tax rates on the rich hurt growth:
1.) First, we have evidence that higher tax rates in general have a negative impact on growth. An overview of this literature is available the sources .
We also have evidence that higher tax rates are responsible for the relative decline in hours worked in Europe relative to the USA, which has contributed to Europe being less productive .
2.) Second, we have the evidence that more progressive tax rates harm economic growth. An example of some of this evidence is in the sources .
3.) Finally, we have the evidence on how the behavior of rich people changes when taxes are changed. The evidence suggests that the behavioral responses are significant .
Taken as a whole, the evidence suggests that higher tax rates reduce economic growth in general, more progressive tax rates reduce economic growth, and rich individuals have quite large behavioral responses to changes in taxation. This is important as the main channels through which high tax rates harm economic growth are on the supply side rather than the demand side.
Entrepreunership is one of the central drivers of economic growth . After all, entrepreneurs are necessary to continually innovate in a constantly changing economy. Unfortunately, highly progressive taxation decreases entrepreneurship. This is simple to imagine if one looks at two men who both have a job that pays $200,000 and a potentially good idea. Both men pay 20% tax rates on their $200,000 income and, if they are to pursue their idea, they would be forced to give up their job. The difference is that one man lives in a country with a flat tax regime of 20%. The other man lives in a supposedly "fairer" society where the first $200,000 are taxed at 20% but every dollar after that is taxed at a punitive 80%. This would dramatically lower the chances that this man would become an entrepreneur. This is a rather extreme example, but the logic applies to any progressive tax regime to varying degrees. Not surprisingly, there is strong evidence that progressive taxation has a negative effect on entrepreneurship .
High tax rates discourate productive behavior such as investing, working, and taking risks and encourages unproductive behavior such as tax avoidance. The evidence provided in the sources suggests that this effect is quite powerful and makes a meaningful difference in the economy. It's also important to note that wealthy individuals are more able to change the composition of their income so they can more easily avoid taxes, which is why they have such high elasticities of taxable income .
Taxes on the Rich are Already Rather High
There is a widespread belief that taxes on the richest 1% are low. This is simply not the case. It seems that this perception is based entirely on anecdotal evidence. There is no doubt that some rich people pay low tax rates, but, as a whole, the richest 1% pay quite high taxes.
The CBO estimates that, in 2013, the top 1% paid an average federal tax rate of 33.6%, compared to 18.1% average for all quintiles . This does not include state and local taxes which, according to reasonable estimates, add another 6% or so to the average tax bill of the top 1% . In total, this suggests a tax rate of around 40% on average, with some higher and some lower.
I find it very hard to argue that one's "fair share" is more than 40%. Admittedly, this is a bit subjective because everyone has a different belief system about what is fair, but I think the fact that wealthy individuals already pay almost 35% of their income to the federal government and 40% to all governments would come off to most reasonable people as, if anything, too high, especially when realizes that the wealthy are already paying a higher tax rate than other classes.
A Moral Question
The practical problems with raising taxes on the rich have already been discussed, at length, here. I also believe there is a moral element to this debate. Do we really want to live in a society where nearly half (or over half) of somebody's income is confiscated by the government?
I certainly don't. America was founded as a free nation, with free enterprise at its core. One of the key tenets of free enterprise is that the government sets no limit on wealth. It is understood that taxes are necessary to pay for basic services and such, but I think it is hard to say that people paying 40% of their income in taxes are not paying their "fair share". No, raising taxes on the wealthy, at this point, would bring us to a place with tax rates that are better described as "confiscatory" than "fair".
Confiscatory tax rates on any class or group is totally contrary to the moral core of the USA. Raising taxes further on the wealthy would be a moral and practical mistake.
I have laid out my case against raising taxes on the top 1% here. I look forward to responding to my opponent's points and defending my own points in future rounds.
"First, we have evidence that higher tax rates in general have a negative impact on growth. An overview of this literature is available the sources. We also have evidence that higher tax rates are responsible for the relative decline in hours worked in Europe relative to the USA, which has contributed to Europe being less productive"
My opponent here is simply making sweeping generalizations about taxes in general.
First of all, I agree that over taxing the middle and lower class is a bad idea. This debate is about the upper class, specifically, the top 1%. Simply stating that In general, taxes might reduce economic productivity does not clash properly with the resolution at hand.
Secondly, my opponent points to Europe as an example, but fails to realize that wealth disparity is not nearly as severe as it is in the US. In Europe, the countries with the most productive economies (Germany, Scandinavian countries, etc.) all have very low GINI coefficients (usually about .25). (1)
Thirdly, my opponent totally fails to articulate the how and why of his point. He shows no logical evidence to prove that taxing the rich will result in net drawbacks. This renders his argument as little more than an appeal to authority.
"Second, we have the evidence that more progressive tax rates harm economic growth. An example of some of this evidence is in the sources."
Again, my opponent totally fails to articulate how progressive taxes hurt economic growth. His point is not logically proved, and his idea is not articulated. Furthermore, the paper he cites has been written only by a mere college student from the college of new jersey.
" Finally, we have the evidence on how the behavior of rich people changes when taxes are changed. The evidence suggests that the behavioral responses are significant"
Again, I don't see the point. Their behaviour changes significantly? How so? Why? Is it bad?
My opponent really isn't making an argument.
"Taken as a whole, the evidence suggests that higher tax rates reduce economic growth in general, more progressive tax rates reduce economic growth, and rich individuals have quite large behavioral responses to changes in taxation."
Then how do you explain countries that are currently thriving with very high tax rates? Countries such as Norway, Sweden, and Germany all have very high tax rates and their economies are growing incredibly fast. In 2010, the German GDP grew 4.1%. Norway's GDP grew 3.1% in 2012 and in 2010 Swedish GDP grew a whopping 6.6%! (2)
Compare this to the US average of 2.2%, and you can see that these countries are growing much faster than us with higher tax rates, and these countries are even burdened by the failing European Union.
My opponent claims that entrepreneurship is a driving force of the economy, and cites a source. If you investigate his source, it leads only to the abstract of a paper. My opponent is simply making wild claims and citing sources that are loosely related in an attempt to make his argument credible.
And he still fails to articulate his point.
As far as my opponents 200,000$ argument goes, well this is totally off topic. If you are making 200,000 annually, then you are not in the top 1%. It's almost laughable that my opponent would even think this. First of all, the top 1% doesn't really have an income in the traditional sense. That is to say, the income tax does relatively little to their actual income. Taxing the 1% relates moreso to higher capital gains taxes, higher property taxes, and higher estate taxes.
The real average "income" of the top 1% is over $700,000 (1). Even at an astounding 80% tax rate (an exaggerated rate) this earner would still have $140,000, which is still over 3 times the average income of the bottom 99% (1).
"Taxes on the Rich are Already Rather High"
This point doesn't clash with the resolution. There is no objective number that determines when a tax is "rather high" or not. Obviously, a 90% tax rate is really high, and a 10% rate is really low, but until you approach these extreme values, it's a bit difficult to objectively determine exactly how high is rather high. Considering, though that during the 50s and 60s, when the US economy was absolutely thriving, the tax on the top 1% was over 70%, I'd say that current taxes on the top 1% just aren't high enough, and I proved this in my Round 1 argument.
Furthermore, the wealthy are notorious for evading taxes. The top 1% use numerous methods to avoid taxation (4). This is illegal. Raising the taxes on the top 1% would mean cracking down on criminal tax evasion.
"A Moral Question"
"Confiscated" my opponent says, as if to imply that somehow the government is a king john, and the top 1% are the poor over-taxed peasants, and the republican party is Robin Hood.
This seems to imply that your taxes simply disappear when you give them to the government.
Have you heard of public roads? Police protection? Military? Social Security? Fire Departments?
Believe it or not, these things are both important, and require money. Sorry charlie, but you don't get a bloated military budget without taxes. You don't get free use of roads and public education without taxes.
At this in my opponents argument, he has exited the realm of rationality, and is merely asserting his own personal moraliity blindly. This argument is totally invalid
My opponent provides ZERO compelling arguments. Therefore, VOTE PRO!
I thank my opponent for his arguments and will now respond to his arguments from round two.
Response to Opponent's Arguments
Inequality and Economic Growth
Let me start by saying reminding everyone that correlation does not equal causation. This is a central insight that is absolutely necessary to understanding issues such as this. Indeed, my opponent makes two claims in his argument here:
1.) Raising taxes on the rich would decrease economic inequality
2.) Reducing economic inequality would boost economic growth
I will concede that raising taxes on the rich would almost certainly decrease income inequality. However, my opponent does not have a strong case for #2. Indeed, all he offers for evidence here is an article from the economist that, while very interesting, does not actually offer any evidence that inequality lowers economic growth, and a blog post that looks at the correlation between income inequality and GDP per capita. There is absolutely nothing wrong, by the way, with citing a blog post. I always believe in evaluating the argument regardless of the messanger. However, it is important that the blogger or whoever is linked to uses sound data and argumentation.
Not surprisingly, the correlation is negative. However, this does not mean that income inequality causes economic growth to decline. It merely means that there is a negative relationship between the two. It is also possible, for instance, that this correlation is due to economic growth decreasing income inequality or a third factor that both increases economic growth and decreases inequality.
In other words, my opponent has offered no strong evidence that income inequality lowers economic growth. Instead, he offers a merely establishes correlation without establishing causation. So, the question then becomes what does the evidence actually say about how inequality impacts growth. This very question was explored by Scott Winship for a paper for the Brookings Institute called "Overstating the Costs of Inequality". In this, Winship looks at the available literature. After noting that most of the studies finding a negative impact on growth from inequality focus on developing countries that are not necessarily applicape for developed countries like the USA, Winship notes :
But the problem is not simply that evidence of inequality's alleged harm to growth is inconclusive or imprecise. There is also significant evidence to the contrary, which throws the left's conclusions about inequality into doubt. Recent work by Harvard's Christopher Jencks (with Dan Andrews and Andrew Leigh) shows that, over the course of the 20th century, within the United States and across developed countries, there was no relationship between changes in inequality and economic growth.10 In fact, between 1960 and 2000, rising inequality coincided with higher growth across these countries. In forthcoming work, University of Arizona
sociologist Lane Kenworthy also finds that, since 1979, higher growth in the share of income held by the top 1% of earners has been associated with stronger economic growth across several countries."
In other words, when it comes to developed countries, the evidence does not suggest inequality hurts growth. Indeed, the evidence that inequality boosts growth is actually stronger than the evidence that it hurts growth in developed countries. Winship concludes :
"The notion that inequality is stifling economic growth or suppressing the wages of the middle class is simply not supported by the available evidence."
My opponent also makes the point that growth in GDP per capita has outpaced median income growth for the past 30 years. This is largely based on faulty math. Indeed, in order to get comparable figures for median income and GDP per capita, three things need to be corrected for :
1.) Taxable income is not all of income, and median income only looks at this. We need to look at all elements of income to get an accurate gauge of how compensation is growing. Indeed, taxable income only accounted for 58% of national income in 2008 .
2.) The average size of the household and tax unit have been shrinking over time. This leads to a fall in taxable income per household that is due to changing household size instead of other factors .
3.) GDP per capita and median income are calculated using different measures of inflation. The method for measuring median income likely overstates inflation. This leads to underestimation of median income growth .
After controlling for these factors, median income growth looks much better and much closer to GDP per capita growth . I'll also note that my source here is a blog post, but I only link to him because he does the math from other, very reliable, sources like BLS, CBO, etc. In other words, please respond to the argument instead of using an ad hominem to attack the fact that the messanger is a blog.
In summary, the evidence suggests that, in developed countries, income inequality does not negatively impact growth. It also suggests that the median income stagnation claim is largely a myth due to mathmatical problems.
My opponent argues that raising the taxes on the rich is a good thing because it decreases the political power of the rich and increases the spending power of the middle class.
My opponent does provide evidence that the USA has a good deal of political corruption. However, he does not provide evidence that low taxes on the rich are a major reason for this. He does offer a theory for why this may be, but there is no evidence to back up this theory. To me, the theory seems weak because, ultimately, politicians are decided by votes instead of money. But, I really have nothing to respond to until my opponent provides evidence.
My opponent also argues that raising taxes on the rich is good because it boosts the spending power of the middle class. This is very unsound economic reasoning. First, my opponent offers no evidence for his claim that increasing taxes on the rich somehow magically increases spending power of the middle class. It is true that taxing the rich transfers some funds to the government. But, what reason do we have to believe that this will translate into greater discretionary income for the middle class?
My opponent does link to a piece by Robert Reich. He also links to a broken link. The piece by Reich relies is heavy in left wing rhetoricbut lacking in strong reasoning. Reich documents the fall in taxation for the richest Americans, but does not make a very strong case for raising taxes on the rich beyond the fact that they used to be higher, which really isn't a strong argument.
Even if higher taxes on the rich contributed to greater spending power for the middle class, this wouldn't boost economic growth necessarily. Long term economic growth is driven by supply side factors that affect productivity. Short term growth has a lot more to do with demand. However, even Paul Krugman has argued that inequality is not holding back recovery . Although, of course, Krugman is still very critical of inequality for other reasons.
My opponent then argues for raising taxes on the rich on keynesian grounds. This left me scratching my head. Keynesian economics posits that running deficits to fund public works is good during hard times economically. Keynes did not, to my knowledge, argue that raising taxes on the rich to fund public works was a good economic recovery plan.
If anything, Keynes would have likely advocated cutting taxes and increasing public spending during recessions to boost recovery.
My opponent makes an even bolder claim: that keynesian economics is responsible for ending the Great Depression. This is the kind of claim that requires evidence, but my opponent offers none. Indeed, most evidence suggests that monetary policy, not keynesian fiscal policy, is responsible for the recovery. This is the explanation that was famously offered by Milton Friedman in his Monetary History of the United States. This book would eventually lead to a major shift in economic thinking on the Great Depression that led many experts to believe that the great depression was caused by monetary policy instead of fiscal policy .
Indeed, even Christy Romer, former chair of Obama's counsel of economic advisors, had a paper in the 1990s that found monetary factors were crucial in ending the Great Depression . As for the New Deal, there is evidence that the regime uncertainty caused by FDR's policies (which included higher taxes on the rich) hindered recovery . On top of this, there is strong evidence that the artificially high wages from the New Deal also hindered employment growth 
I have now offered my response to my opponent's arguments for higher taxes on the rich and look forward to the next round.
"Inequality and Economic Growth"
My opponents rebuttal is as follows:
(A) I have failed to prove a causational relationship between GINI coefficient and Economic Growth
This is simply false. My opponent claims that disparity only restrics growth in developing countires. My opponent totally fails to overlook countries with GINI coefficients in the "goldilocks zone" that I have shown to have massive GDP growth compared to that of the United States.
Furthermore, correlation does not imply causation, rather, causation is hypothesized, and correlation confirms causation. The hypothesis behind disparity and stagnation is that higher disparity reduces the incentive to work, among many other causes.
Economist Stieglitz writes (1),
"There are four major reasons inequality is squelching our recovery. The most immediate is that our middle class is too weak to support the consumer spending that has historically driven our economic growth... Second, the hollowing out of the middle class since the 1970s, a phenomenon interrupted only briefly in the 1990s, means that they are unable to invest in their future, by educating themselves and their children and by starting or improving businesses...
Third, the weakness of the middle class is holding back tax receipts, especially because those at the top are so adroit in avoiding taxes and in getting Washington to give them tax breaks... Fourth, inequality is associated with more frequent and more severe boom-and-bust cycles that make our economy more volatile and vulnerable."
IMF writer David Lipton agrees (2), Income disparity forces the economy to stagnate through lower consumer spending, among other causes.
IMF economists Berg and Ostrey write (3), "Inequality matters for growth and other macroeconomic outcomes, in all corners of the globe."
There is an obvious and logical cause-effect relationship between disparity and stagnation. MY opponent attempts to mitigate this, and totally fails. Therefore, this point is left totally unrebutted by my opponent.
(B) Median income disparity is an illusion
This rebuttal is almost laughable. Essentially, what my opponent states is this "Your wrong because median income is calculated differently from GDP per capita."
GDP per capita is simply the GDP divided by the population.
Median income is the median of all incomes.
Essentially, GDP per capita tells us what the average income is, but this does not change not matter how much disparity there is. Take "Thriftsville" A fictional economy. Thiftsville has a population of 100 and a GDP of 100 million USD. Thriftsville, however, is controlled by a corporate oligopoly, consisting of 3 members of the population. GDP per capita is 1 million. The average income is therefore 1 million dollars. But because there is massive disparity, the median iincome is only 2$ because if all of the incomes of thriftsville were lined up, the median income is the income smack dab in the middle. This is a more accurate gauge as to what the spending power of the middle class is like, because this means that 50% of all salaries are less than this amount. The median income simply isn't growing, and therefore consumer spending is failing.
My opponent claims "Stagnation is a myth."
Wrong. Wrong. Wrong.
Bordeux and Perry are the obvious inspiration for my opopnents argument here. Heck, they practically invented the "stagnation is a myth" movement.
"B&P are correct in noting that better technologies have improved the lives of middle-class Americans in many ways... But the notion that “middle-class Americans consume a lot more like the rich than they used to” is pure poppycock. Some amongst the 1% spend more on frivolous luxuries per year than most of us make in a lifetime... The children of the wealthy have opportunities, freedoms, and connections, that middle-class Americans don’t. Success in America depends not only on hard work, but also, to a degree that most people don’t want to admit, on being in the right place at the right time — as author Michael Lewis infamously reminded graduating students at Princeton in a commencement address this June... Economist Tom Hertz has quantified some of the benefits of being born rich, showing that children born into families in the wealthiest ten percent are more than twenty times more likely to remain rich than children born into the poorest ten percent are to become rich." (3)
"Boudreaux and Perry count the basics as food, clothing, shelter and cars. Fine. But what if we add in gasoline (to run those cars), health care (to help us live longer) and education (which is increasingly required for getting and keeping a middle-class job)? Then the math looks a lot different. If you expand the “basics” group to include gas, health care, health insurance, medical prescriptions and education, there’s little change over the last 40 years. That group of basics ate up 64 percent of American consumer spending in 1970, and 62 percent in 2011. Put a different way, we spend less of our incomes today on clothes and food. We spend more on doctors and fuel. It’s hard to see how the former are “basics” and the latter are not." (4)
Simply put, Stagnation is not a myth. My opponent has simply cherrypicked data. CPI has changed, and the nature of consumption has changed. Stagnation is a very real threat.
My opponent rebuts:
(A) Evidence for wealth concentration causing corruption?
My opponent is again mitigating, rather than rebutting. Rather than disproving my argument outright, he merely attempts to lessen the severity indicated.
I ask, how else can a politician become corrupt? Is there any other corrupting force in politics? What drive politicians to corruption and favoritism and selfishness other than want of money. Want for money and power are the only corrupting powers in politics, and in a Capitalist economy with a major focus on advertisement, money is power.
(B) Raising taxes on the wealthy does not increase the spending power of the middle class.
My opponent is contradicting himself here. He concedes earlier "I will concede that raising taxes on the rich would almost certainly decrease income inequality."
Yet now somehow wishes to argue that higher taxes won't increase the spending power of the middle class. Lower disparity means the middle class is wealthier. A wealthier middle class spends more money.
My point was that with higher government revenue, the government would be able to spend more money in order to recover the economy. My opponent over-simplifies Keynesian economics in order to make his point more tenable.
Furthermore, he argues that keynesian economicsh hindered recovery during the great depression, but this is not true. However, this is a subject that merits a debate on its own. For now, I will simply cite Krugman's agreement (5)
that the recovery of the Great Depression was largely due to Keynesian economic policy.
My opponent fails to fully rebut any of my points, and drops many of them. Furthermore, my opponent makes only mitigating arguments that only cast shadows of doubt over my argument, rather than disproving any of them outright.
I will begin this round by defending my own arguments against higher taxes on the rich:
Higher Tax Rates and Economic Growth
In the first round, I argued that high tax rates on the rich would harm economic growth while raising little revenue. I based this on three empirical observations:
1.) Higher tax rates reduce economic growth.
2.) More progressive tax rates reduce economic growth.
3.) Rich individuals have unusually large behavioral responses to changes in tax rates.
I provided empirical evidence for all of these claims in the last round. My opponent makes the mistake of looking at each of these three points individually and arguing that, on their own, they do not make a very strong case against raising taxes on the top 1%. The mistake here is looking at each of these points in isolation.
My opponent is correct that the fact that higher tax rates reduce economic growth, by itself, does not wage a strong case against taxing the rich at high rates. However, once you combine this with the fact that more progressive tax rates also reduce economic growth and that rich individuals have large behavioral responses a case for not raising taxes on the rich begins to emerge.
The mechanism through which higher and more progressive tax rates harm growth is of central importance. It is supply side effects of taxation that harm growth. This means that behavioral responses to high tax rates are responsible for reduced economic growth. Behavioral responses to high tax rates, as I argued in the first round, explain most of the difference in hours worked between the USA and Europe .
This is important because rich people have unusually large behavioral responses to changes in tax rates. I provided evidence for this in the first round as well by showing that the ETI (elasticity of taxable income with regards to taxes) is unusually high for rich people . This means that when taxes go up, taxable income of rich people goes down. There are a number of reasons for this. Greater tax avoidance is one. When tax rates are higher, investing in tax lawyers and moving income to avoid taxes makes more sense because tax avoidance brings greater rewards.
Another mechanism is hours worked. In particular, tax rates affect decisions on such things such as whether or not a family will have a second earner, since this second earner's entire income will be taxed at the top marginal rate. The 1986 tax reform act significantly reduced marginal tax rates for wealthy families. This led to an increased incentive for married women to enter the workforce. Indeed, Nada Eissa of Berkeley looked at this very question by exploring the impact of the 1986 tax reform act on the labor force participation of rich, married women. She found :
"I find evidence that the labor supply of high-income, married women increased quite substantially after the Tax Reform Act of 1986...The observed responses imply an hours worked elasticity with respect to the after-tax wage that is somewhat high, in the range of 0.6 to 0.8."
In other words, lower marginal tax rates for the rich led to significantly higher labor force participation for rich, married women. The question then, of course, becomes why we should care.
After all, my opponent argues, does it really matter if rich people avoid more taxes or work less?
Actually, yes. It matters for a couple reasons. First, the supposed benefit of higher tax rates on the rich is more revenue for the federal government. If the rich avoid taxes more and have less taxable income in response to higher taxes, this benefit is reduced as revenues will go up by substantially less than expected.
This means that the benefit of taxing the rich is much smaller when taking this into account. This also matters because the investment decisions of the rich affect the entire economy. If rich people choose to invest more in tax lawyers in response to higher tax rates, that means less investment in more productive ventures. That means less new capital for entrepreneurial ventures. Resources will go towards innefficient uses such as tax avoidance.
Another point I made was the negative effect of high, progressive tax rates on entrepreneurship. My opponent responded with a number of dissapointingly weak objections. First, he has a problem with the evidence I provided that more progressive tax rates harm economic growth because it is written by a college student. This is an ad hominem attack by my opponent, but, for the sake of argument, I will provide further evidence by professional economists of the negative impact of progressive taxes. Fabio Padovana and Emma Galli looked at a large panel of countries over a 30 year period and found :
"We find that marginal effective tax rates and tax progressivity have a negative influence on economic growth. This negative correlation turns out to be robust after controlling for state and policy variables. "
My opponent also has a problem with my claim that entrepreneurship is important for economic growth. His objection is that my source for this is "an abstract". Indeed, I did link to a study that documented the importance of entrepreneurship on growth, which includes an abstract. I am not sure I understand this objection. If my opponent doubts the importance of entrepreneurship for economic growth, I would direct him to Dr. Ercan Ekmekcioglu :
"Entrepreneurship leads to introduction of new goods withnew quality and value. Their innovativeness introduces new ways of production and new markets thathave not been exploited. It is through entrepreneurship that new source of supply are discovered andcreation of new business organisations that directly affect the economy. Creation of new businessopportunities through entrepreneurship, productivity and innovation leads to economic growth. This therefore means that when there is more entrepreneurship in an economy more growth is expected."
I have actually never had anyone object to the idea that entrepreneurship is good for growth. Yet, my opponent calls this a "wild idea". I look forward to hearing more about why my opponent believes that entrepreneurship being good for growth is a "wild idea".
I then used a hypothetical example to show how high, progressive tax rates on the rich would reduce entrepreneurial activity. My opponent entirely missed the point of this hypothetical example. His counterargument, quite amazingly, is that $200,000 isn't the top 1%. It seems that the fact that this was simply a hypothetical situation to demonstrate the effects of taxation totally went by my opponent. I picked $200,000 as an arbitrary number just for the sake of argument. You can replace "$200,000" with "$700,000" in my hypothetical example and the same economic logic and incentives still exist. For those who are interested, I also cited a study documenting the negative effect of tax progressivity on entrepreneurship in the first round .
My opponent also makes the all too common argument that high taxes in some wealthy European countries is proof that high tax rates don't hurt growth. This could not be further from the truth. I do not deny for a second that countries like Germany or Sweden have high standards of living. However, this argument is specifically about economic growth. In terms of per capita GDP, the USA comes out well ahead of the countries mentioned by my opponent.
The USA, according to the IMF, has a per capita GDP of about $51,704 . By comparison, Sweden has a per capita GDP of $40,304 and Germany of $38,666 . I will note, however, that Norway does have a higher per capita GDP than the USA. This is, however, almost certainly due to high per capita oil production, because Norway is quite rich in oil. Indeed, Norway is fifth in the world in terms of per capita oil production . As I noted earlier in the debate, there is also evidence that high tax rates explain the relatively low hours worked in some European countries .
Current Level of Taxes on the "1%"
I will agree with my opponent that whether or not one thinks the rich are paying "too much" or "too little" in taxes is largely a question of individual vales. I even acknowledged this in my original argument. My goal here was simply to show that most rich people pay tax rates of around 40%, which I think most people would find excessive. But, this is certainly a value question.
My opponent pulls a favorite tactic of advocates of higher taxes here. First, he "explains" the need for roads, police, and other public services and then argues that this somehow strengthens the case for higher taxes.
This would be okay if he was arguing against someone who opposed all taxes. He is not. Instead, I am merely arguing that taxes are not too low. I think that a 40% tax rate should be more than sufficient to pay for all of the aforementioned services. If it is not, the problem would be public sector efficiency instead of low taxes.
My opponent needs to realize that he is arguing for higher taxes relative to the current tax code not taxes in general. If he wants to argue that higher taxes on the rich are necessary to pay for basic services, he is free to make that argument. This argument is not, however, whether or not we should have taxes. It is whether or not the rich should pay more. Those are two very different arguments.
I thank my opponent for an excellent debate thus far.
As a reminder, This is the final round, and dropped points may not be rebutted.
(A) Eliminating Tax Loopholes
"Raising the taxes on the top 1% would mean cracking down on criminal tax evasion."
This was a point brought up in my R3 rebuttals. My opponent totally fails to adress this. In order for the Con to win, his argument must convince the voters that criminal tax evasion should not be punished, or that tax law ought to be more rigorusly enforced.
My opponent fails to fully rebut any of my argument. 100% of his rebuttals were shown to be false in my R4 argument. Furthermore, his rebuttals are only weak mitigations, not full rebuttals.
My opponent has failed to fully prove his case. His points and sources are contradictory. He attempts to rebut Pro arguments with "Correlation does not imply causation" yet provides only correlations as arguments. His case is thoroughly rebutted by the Pro. His defences are merely weak mitigations
Therefore, VOTE PRO!!!
I thank my opponent for a good debate and will do a quick recap of the points before ending this debate.
Quick Recap of My Points
In the first round, I showed that high tax rates on the rich would reduce economic growth and distort economic behavior thus reducing productivity. My opponent failed to offer a strong response here and effectively dropped a number of points by either ignoring them or writing them off simply because simply because he couldn't understand them or how they supported my case.
For example, my opponent's response to my point about rich people altering their behavior in response to high tax rates was simply:
"Again, I don't see the point. Their behaviour changes significantly? How so? Why? Is it bad?"
In fact, anyone who read my first round would understand that this was a key part of my larger argument showing that high tax rates generated supply side effects among rich people that had an adverse impact on economic growth. The fact that my opponent "doesn't see the point" is a problem with his ability to analyze arguments, as the argument was quite straightforward.
There are many other examples of this type of response to my points. My opponent, effectively, ignored my point about European high tax rates hurting growth by pivoting back to his points about inequality, without really responding to the argument. Despite the lack of real response to my arguments, I offered a full explanation and defense of my arguments in round 4 that more than answered my opponent's criticisms.
I also pointed out that most rich people already pay quite high taxes and that many find this to be immoral. My opponent's respones to these points were also quite weak. I direct readers to round 4 for all of these arguments.
My Opponent's Points
My opponent also put forward a number of arguments in favor of higher taxes on the rich. I responded to those arguments in full in round 3. I pointed out that the evidence is very strong that economic inequality does not hurt economic growth. I also put forward arguments for why the median income figures are skewed downward and that taxing the rich is not good macroeconomic policy.
I see my opponent's defenses of his own arguments to be quite inadequate as well. I think most readers will agree, but that is up to them.
On a final note, I did not drop any points in the debate. Due to the limitations of this round, I cannot go back and respond to my opponent's claim about this, but I encourage readers to go read my round 4 response for themselves to see that the point was not dropped. My opponent, on the other hand, dropped a number of points. Indeed, he dropped many more than I have even mentioned in this round.
Overall, I have clearly showed that the resolution "Taxes on the top 1% Wealthiest Americans Ought be raised" clearly fails. I have effectively rebutted all my opponent's points and defended all of mine in full. There is simply no justification for doing anything other than voting CON.
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