Suppose a politician suggests that increasing the sales tax on yachts and private jets from 8 percent to 25 percent will increase government revenues that will onlyaffect the wealthy (who can afford it). So with this increased revenue the government may provide financial assistance to other citizens, including college students, the poor, and public employees. Imagine that this policy is implemented but the politican’s prediction does not come to pass.
What happens is that the demand for luxury items decreases (since some of the “rich” are not “filthy rich”), the prices for these items are lowered in order to increase the demand, and the luxury item manufacturers, distributors and retailers fire a large number of their workers since their employers can no longer afford their salaries. Moreover, those that benefited directly and indirectly from the sale and use of luxury items were harmed as well.
For the tax increase resulted in decreasing sales of fuel, life vests, parachutes, cleaning articles, alcohol, first aid kits, bait and tackle, and all sorts of other items. Yacht and private jet mechanics had less work, and thus less business and thus less income. So, what the tax increase did was not “soak the rich,” but, paradoxically, it resulted in less tax revenue for the government, since it helped facilitate a decline in sales by artificially increasing the cost of the items, and because it created unemployed workers who no longer paid taxes and less prosperous businesses that paid fewer taxes.I bring this narrative to your attention because of something President Obama asserted at his June 30 conference: “If we do not have revenues, that means there are a bunch of kids out there who do not have college scholarships. . . .[It] might compromise the National Weather Services. It means we might not be funding critical medical research. It means food inspection might be compromised. I’ve said to Republican leaders, ‘You go talk to your constituents and ask them, Are you willing to compromise your kids’ safety so some corporate-jet owner can get a tax break?’”