By John Rhoads, CFP^TM

Over the last several years, federal income tax law has exhibited an alarming trend toward shifting an increasing portion of the tax load to high-income households. While the tax rates themselves remain relatively stable, total tax bills for the affluent continually increase. For example, a cap on the amount of charitable contributions that can be credited to offset income tax was instituted in 1998. Similarly, the income cap for Medicare taxes has been removed, so that all earned income in a given year incurs this tax.

I believe that the long-term social costs of this trend toward shifting the tax burden to affluent households will outweigh the short-term economic benefit. Problems will arise as this increased tax load takes away money that could otherwise be used for business expansion and charitable gifts. This will in turn reduce the number of jobs and opportunities available for all individuals. Private providers of social services will lose donors just when government wants to increase those providers’ roles in providing social aid.

The trend toward making the affluent pay ever increasing proportions of the tax bill is foolish and will harm society more in the long run than would a fair distribution of taxes among all producers in our society.