What Are The Pros And Cons Of Raising Taxes On The Top 1% Of The Population?

April 10, 2012 by  Filed under: Taxes 

As America hurtles through tax season in an election year, and moves closer to the Presidential showdown in November, taxes will be an important issue. While Democrats have historically been about higher taxes and Republicans are usually about cuts, there is now a rift that may be beyond repair. Democrats insist that the top 1 percent of America’s wealth should be taxed more heavily. Republicans argue that doing so would impede job growth and the GDP. They also have concerns for the small business owner, who is struggling to get by and claim that many Democratic policies present a slippery slope towards eating into the profitability of all small businesses. These ideological differences beg the question: what are the pros and cons of raising taxes on the wealthiest 1 percent of Americans?

Pro: Higher revenue

In order to get out of the jam the government has gotten the country in to, two things must happen. Spending must decrease. Revenues must increase. But with so many of the so-called “99 percent” struggling to get by or even find employment, where is the revenue going to come from. And if the government levies higher taxes on all business owners, what will happen to the jobs that currently exist? The government must extract higher revenue than it currently does in order to shrink the national debt and secure America’s future.

Con: Cannibalizing profits

Whenever the minimum wage goes up, or taxes increase, the first response of companies is to cut expenses. Usually, that means reducing the workforce. With an already abysmal unemployment and underemployment rate, higher taxes could tip the scale back toward recession if businesses slash jobs. While wealthy investors, such as Warren Buffett, are willing to pay more in taxes, the vast majority of small business owners and large corporations are terrified of what it may do to their profits, and they’re more likely to reduce workforce before they even see their bottom line results.

Pro: Strengthened infrastructure

This element is so vital to the general population and job growth that it could be considered essential. As the population continues to grow, greater infrastructure will be needed to support job growth and consumer culture, and without higher taxes, it could prove impossible.

Con: Irresponsible spending

It’s true. When taxes are higher, the government does have a reputation for wasteful spending. By keeping tax revenues down, it could be just the catalyst that Washington needs to make tough but necessary decisions they’ve been unwilling to make. Decisions that could ultimately save the country’s economic system.

When considering the arguments for higher taxes on the wealthiest 1 percent, one cannot lose sight of the far reaching effects and the ultimate consequences. But one thing is for sure: revenue must increase. Where will the money come from?

Accounting firm Pittsburgh has over 20 years of experience. Services include business consulting and tax compliance help to corporations, individuals, partnerships, limited liability companies, estates, trusts, and not-for-profits. The Firm is also a 2008 SBA Award Winning Pittsburgh CPA.

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