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The IRS Versus a New Yacht: Will Raising Taxes on the Rich Cost Jobs?

Buffett Rule
Standing with millionaires and their assistants, President Obama made a statement about the ‘Buffett Rule’ on April 11, 2012. Named after the billionaire investor Warren Buffet, the ‘Buffet Rule’ would ensure that the wealthiest Americans pay at least 30 percent of their income in federal taxes. Photo by Chip Somodevilla/Getty Images.

Paul Solman frequently answers questions from the NewsHour audience on business and economic news on his Making Sen$e page. Here is Wednesday’s query:

Name: Jeff Gallishaw

Question: Isn’t it a myth that raising taxes on the rich will cost jobs? If I’m a business owner, my personal income tax is based, in part, on the money I draw from the business. My decision on whether to hire new employees is based on one thing: will the new employee generate more revenue than it costs me to employ her? If the answer is yes, my business is more profitable and I can take a larger draw. The idea that part of my personal, take-home income goes to the IRS instead of to my third yacht does not in any way affect my decision on hiring employees.

Making Sense

I feel that this is a very important issue and that this fiction is being perpetuated by the 1 percent and that no one is calling them on the lie. If I am mistaken about this, please explain the flaw in my logic.

Paul Solman: Your experience certainly jibes with what we’ve found in the field, from Harley Davidson in Milwaukee in 2003 to a variety of businesses in Nashville just recently.

The fullest debate of the issue we’ve run was with Arthur “Curve” Laffer and Peter “Nobel” Diamond in “Taxes: How High Is Too High?”

And for more, see Diamond’s paper with Emmanuel Saez: The Case for a Progressive Tax.

This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions

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