In 2009 there were more than 16,000 individuals in Britain that declared an income of more than £1 million pounds (about $1.6 million dollars). In an effort to raise revenues, in 2010 the government implemented a 50% tax rate on millionaires, only to see the number of millionaires fall by more than 60% over the following year and a loss of £7 billion in tax revenue. Higher tax rates generally diminish economic activity and push more of it underground, nullifying much or all of the anticipated tax increases. The reverse is also true as seen last decade as a lower and flatter tax rate structure in Russia brought more economic activity to the surface and produced much higher tax revenues than anticipated.
The government's inability to balance its fiscal checkbook is certainly not because of inadequate tax "revenue". The federal government has seen tax revenues increase by over 40 times since 1957, from about $82 billion a year to about $3.8 trillion, an average increase of over 7% per year. It is disingenuous for politicians to claim that if tax rates were to increase (or decrease) then the government would finally get serious about balancing its books. The federal government has not earned this credibility and taxpayers know better. .For five straight years, the U.S. federal deficit has exceeded one trillion dollars, or $1,000,000,000,000, adding a total of more than $7 trillion to the government's debt (from just over $9 trillion to over $16 trillion). At this point, the government is so far away from a balanced budget that whether or not the government increases taxes with the hope of taking in an extra $50 billion or $100 billion a year is largely irrelevant to the fiscal health of the U.S. government.
The government's outstanding debt and its yearly deficits are now so large that there are not enough natural buyers for the Treasury bonds and bills sold by the Treasury department. To create artificial demand the Federal Reserve must buy the debt. Last year 61% of Treasury debt was bought by the Federal Reserve, up from almost nothing prior to 2008. The Federal Reserve now holds more than $1.5 trillion in U.S. Treasury debt and it has promised to do much more such buying in the coming years. This helps keep interest rates artificially low and allows the dangers of the budget deficit to be ignored. This in turns encourages governments to overspend in bigger amounts because they know that the debts will be financed by the Federal Reserve.
The problem with the government's strategy is that it harms mostly those individuals the government professes to want to help – the poor and middle-class. These are the groups most damaged by money-printing, and the inflation that comes from it. Inflation is sometimes called the most regressive tax because it's the poor and middle-income consumers that most directly suffer from the higher prices of food, energy, and other goods that inflation brings. On the other hand, since wealthier individuals, especially the super-wealthy generally own a higher percentage of assets, such as stocks, bonds, and real estate, inflation does not have as much of a damaging affect, and often further increases their wealth. The large financial companies, such as Goldman Sachs and JPMorgan Chase, receive big benefits from government money printing because it leads to guaranteed profits on bond sales and more Wall Street speculation and profits. Money-center banks also benefit from the ultra-low interest rates orchestrated by the Fed since these large investors can borrow money from the government at very low interest rates and lend or invest those monies at higher rates, leveraging high returns.
The truth is that the Federal Reserve exists mostly to enrich the fortunes of the political class and the mega-banks. The Fed allows the federal government to spend money it doesn't have, seemingly without consequence. This allows for more government largess to constituents without the natural consequences of overspending. Debts are daily increased and pushed forward to tomorrow. Eventually there will be severe consequences to the money printing, and government overspending but in the meantime, politicians will fight over petty conflicts, generate more class warfare, and wonder why entrepreneurship and the American spirit doesn't thrive amid a warfare-welfare Fed-enabled Debtocracy. Of course, the problem isn't with taxpayers, except to the extent that they continue to vote for irresponsible and unaccountable congressmen and support a (Federal) banking system that is extremely detrimental to the financial health of American families and the welfare of society as a whole.
I hope that Congress resolves this latest squabble, but I have little faith that it will.. Governments have always blamed one group or another for the problems of society and pitted groups against each other, and have ignored their complicity and cooperation in creating a debt-ridden society and state. Most politicians don't care about the freedoms and financial health of taxpayers, but are more concerned with remaining in power and growing that power. The U.S. government has been going off a cliff for most of the past several decades and this latest example is a shining display of their failures.