Max, not only are wealth redistributionists rhetorically inflating the perception in today’s terms of a million dollars’ worth of purchasing power (a million bucks certainly ain’t what it used to be), but perhaps most important, they fail to consider such a sum in the context of an entrepreneurial economic system.
Innovative drive, America’s engine of economic growth, is largely fueled by bottom-up risk-taking. Every day, thousands of young entrepreneurs toil away in either their parents’ basements or comparable living arrangements, investing their talents, skills, and career-advancement years in the bootstrapping of risky, ambitious start-ups, which usually pay very little, if at all, over the first years of operation.
A small percentage of such ventures, owing to a synergy of luck and merit, eventually establish a customer base and steady cash flow. The most successful ones are often bought out, partially or completely, by industry giants. But the vast and silent majority dwindle down into oblivion — we never hear and rarely think of the ventures befallen by this fate — when resources run out and the entrepreneur eventually settles for a steady, if less ambitious, stream of income at an established business.
America desperately needs these energetic entrepreneurs to expand our technological frontier, but our tax system penalizes their risk-taking behavior. A million dollars or a sum in that range to them may be the culmination of many years of fervent effort toward materializing a business or product no one else has conceived of — years in which they have forgone the income obtainable from salary positions. When and if their efforts finally do pay off, not only does the time value of money erode the real worth of their lump-sum payment, but being treated under a high marginal tax rate further evaporates their earnings unduly. Unlike corporations, individuals cannot spread their losses over time in the eyes of the IRS. Therefore, the government is incentivizing a lifestyle dedicated to steady moderate earnings over one in pursuit of an open-ended, risky large payoff after years of financial sacrifices.
Because most taxpayers, at whom this “millionaires’ surtax” political pitch is aimed, are wage earners themselves, they can scarcely relate to the immense risks and sacrifices often involved in earning anything close to a million dollars. But entrepreneurial activity and the financial benefits accruing thereto are higher in America than anywhere else in the world. Ergo, a significant proportion of the millionaires burdened by the proposed surtax will be young entrepreneurs of unsteady income whose fruits of hard work are already embittered by our progressive tax code.
Does this administration really want to break the backbone of the American economy?