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Does Hiking Tax Rates Raise More Revenue?
MarketWatch.com ^
| July 2, 2010
| Kurt Brouwer
Posted on 04/09/2012 8:31:38 AM PDT by Son House
We really dont know what the optimum tax rate would be that maintains revenues at 18-20% of GDP while allowing for maximum GDP growth, but we do know that economic growth is good for everyone and as the economy grows, tax revenues grow automatically. Ideally, our leaders in Washington would try to figure out the optimum tax structure to generate revenues at 18-20% of GDP while stimulating economic growth. Once that level is determined, I believe they should set the rate and forget it.
Unfortunately, tinkering with the tax code seems to be irresistible to almost all politicians. In addition, raising taxes on the rich is a populist theme many politicians have adopted. This idea is widespread even though there is a very good chance that higher tax rates will not lead to higher tax revenues. Our political leaders often misunderstand the long-term consequences of tax law changes and they advocate policies that bear little or no relationship to economic reality.
As you can see from these charts, soaking the rich by raising tax rates generally does not work. And, there can be collateral damage in that high tax rates almost always reduce economic activity which hurts everyone. If the goal is to maximize economic growth and generate adequate tax revenues, we know what makes sense.
I put together the information in this post to answer the question initially raised does raising tax rates increase tax revenues? I used information from both liberal and conservative sources to help you get comfortable with the history of tax rates and tax revenues.
...I believe we need a steady, consistent tax policy with two goals: generating steady and adequate current tax revenues and maximizing economic growth.
(Excerpt) Read more at blogs.marketwatch.com ...
TOPICS: Business/Economy; Constitution/Conservatism; Government; Politics/Elections
KEYWORDS: raise; rates; revenue; tax
No, the more you take out of the private sector, the smaller the private sector; the less job opportunities.
As the author notes and an honest Democrat would have already acknowledged: generating steady and adequate current tax revenues and maximizing economic growth, although I would disagree with the "adequate current" and instead put that to the House of Representatives: to make sure total spending is equal to or less than the generated current tax revenues. Don't make promises that you can't keep.
1
posted on
04/09/2012 8:31:47 AM PDT
by
Son House
To: Son House
How much revenue would Ubama collect at a 100% tax rate on everyone?
Anyone? Buehler?
2
posted on
04/09/2012 8:41:19 AM PDT
by
E. Pluribus Unum
(Over half of U.S. murders are of black people, and 90% of them are committed by other black people.)
To: Son House
The fist thing that needs to be done is to cut spending.
3
posted on
04/09/2012 8:43:38 AM PDT
by
corlorde
(Drone strikes: the preferred method of killing by Nobel peace prize winners since 2009)
To: Son House
4
posted on
04/09/2012 8:54:34 AM PDT
by
rlmorel
(A knife in the chest from a unapologetic liberal is preferable to a knife in the back from a RINO.)
To: Son House
high tax rates almost always reduce economic activity which hurts everyone. Taxes hurt the economy because they are an assault on savings which reduce investment and productive expenditure which cause less capital accumulation, and which reduces the demand for labor resulting in lower average money wage rates and lower employment rate.
5
posted on
04/09/2012 8:59:18 AM PDT
by
mjp
((pro-{God, reality, reason, egoism, individualism, natural rights, limited government, capitalism}))
To: Son House
The level of taxation will never be enough for those that vote FOR their living from taxes.
6
posted on
04/09/2012 9:09:22 AM PDT
by
griswold3
(Big Government does not tolerate rivals.)
To: Son House
Psychotic Progressives will never be convinced to take the U.S. Constitution seriously.
The only part they love to embrace and support is the one that allows Congress to impose taxation on anything that moves.
IMHO
7
posted on
04/09/2012 9:19:01 AM PDT
by
ripley
To: ripley
Does Hiking Tax Rates Raise More Revenue?
Sure, if you raise rates from zero. But after a certain point, it will cease to have this effect.
8
posted on
04/09/2012 9:21:59 AM PDT
by
aruanan
To: aruanan
“Sure, if you raise rates from zero. But after a certain point, it will cease to have this effect.”
HOw about a 9% tax rate for all, as suggested by Herman Caine?
Imagine the rate of growth that would take place; it would probably be astronomical.
IMHO
9
posted on
04/09/2012 9:53:12 AM PDT
by
ripley
To: E. Pluribus Unum
There are two key points on the tax rate vs. revenue curve — tax rates of 0% generate zero revenue and tax rates of 100% generate zero revenue. There’s an optimum for society somewhere between those two points and it is usually in the 15% to 20% range — and that would be the TOTAL tax take from your town up to the Feds. We are WAY beyond that.
Of course, the discussion of what is optimal is totally moot because the socialists and communists want to use taxes to create mythical “fairness”. Their ultimate objective, of course, is to abolish private property ownership and have it all owned by the State, empirical evidence be damned. It’s all about their distorted view of “fairness.”
To: ProtectOurFreedom
What they ultimately want is for everybody that they don’t like to be dead.
11
posted on
04/09/2012 10:32:34 AM PDT
by
E. Pluribus Unum
(Over half of U.S. murders are of black people, and 90% of them are committed by other black people.)
To: Son House
As the author notes and an honest Democrat would have already acknowledgedIf they're still a Democrat there's no way they're honest. Not after Comrade Zero.
12
posted on
04/09/2012 10:36:54 AM PDT
by
Marathoner
(2 goals this year: (1) S##tcan Obamacare; (2) S##tcan Obama)
To: Son House
Read
this:
There is a distinct pattern throughout American history:When tax rates are reduced, the economy's growth rate improves and living standards increase.
Good tax policy has a number of interesting side effects.
For instance, history tells us that tax revenues grow and "rich" taxpayers pay more tax when marginal tax rates are slashed.
This means lower income citizens bear a lower share of the tax burden -a consequence that should lead class-warfare politicians to support lower tax rates.
Conversely, periods of higher tax rates are associated with sub par economic performance and stagnant tax revenues.
In other words, when politicians attempt to "soak the rich," the rest of us take a bath.
Examining the three major United States episodes of tax rate reductions can prove useful lessons.
1) Lower tax rates do not mean less tax revenue.
The tax cuts of the 1920s
Tax rates were slashed dramatically during the 1920s, dropping from over 70 percent to less than 25 percent.
What happened?
Personal income tax revenues increased substantially during the 1920s, despite the reduction in rates.
Revenues rose from $719 million in 1921 to $1164 million in 1928, an increase of more than 61 percent.
According to then-Treasury Secretary Andrew Mellon:
The history of taxation shows that taxes which are inherently excessive are not paid.
The high rates inevitably put pressure upon the taxpayer to withdraw his capital from productive business
and invest it in tax-exempt securities or to find other lawful methods of avoiding the realization of taxable income.
The result isthat the sources of taxation are drying up;
wealth is failing to carry its share of the tax burden;
and capital is being diverted into channels which yield neither revenue to the Government nor profit to the people.
The Kennedy tax cuts
President Hoover dramatically increased tax rates in the 1930s
and President Roosevelt compounded the damage by pushing marginal tax rates to more than 90 percent.
Recognizing that high tax rates were hindering the economy, President Kennedy proposed across-the-board tax rate reductions
that reduced the top tax rate from more than 90 percent down to 70 percent.
What happened?
Tax revenues climbed from $94 billion in 1961 to $153 billion in 1968, an increase of 62 percent (33 percent after adjusting for inflation).
According to President John F. Kennedy: Our true choice is not between tax reduction, on the one hand, and the avoidance of large Federal deficits on the other.
It is increasingly clear that no matter what party is in power, so long as our national security needs keep rising,
an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget
just as it will never produce enough jobs or enough profits
In short, it is a paradoxical truththat tax rates are too high today and tax revenues are too low
and the soundest way to raise the revenues in the long run is to cut the rates now.
The Reagan tax cuts
Thanks to "bracket creep," the inflation of the 1970s pushed millions of taxpayers into higher tax bracketseven though their inflation-adjusted incomes were not rising.
To help offset this tax increase and also to improve incentives to work, save, and invest,
President Reagan proposed sweeping tax rate reductions during the 1980s.
What happened?
Total tax revenues climbed by 99.4 percent during the 1980s,
and the results are even more impressive when looking at what happened to personal income tax revenues.
Once the economy received an unambiguous tax cut in January 1983, income tax revenues climbed dramatically,
increasing by more than 54 percent by 1989 (28 percent after adjusting for inflation).
According to then-U.S. Representative Jack Kemp (R-NY), one of the chief architects of the Reagan tax cuts:
At some point, additional taxes so discourage the activity being taxed, such as working or investing, that they yield less revenue rather than more.
There are, after all, two rates that yield the same amount of revenue:high tax rates on low production, or low rates on high production.
2) The rich pay more when incentives to hide income are reduced.
The tax cuts of the 1920s
The share of the tax burden paid by the rich rose dramatically as tax rates were reduced.
The share of the tax burden borne by the rich (those making $50,000 and up in those days) climbed from 44.2 percent in 1921 to 78.4 percent in 1928.
The Kennedy tax cuts
Just as happened in the 1920s, the share of the income tax burden borne by the rich increased following the tax cuts.
Tax collections from those making over $50,000 per year climbed by 57 percent between 1963 and 1966,
while tax collections from those earning below $50,000 rose 11 percent.
As a result, the rich saw their portion of the income tax burden climb from 11.6 percent to 15.1 percent.
The Reagan tax cuts
The share of income taxes paid by the top 10 percent of earners jumped significantly, climbing from 48.0 percent in 1981 to 57.2 percent in 1988.
The top 1 percent saw their share of the income tax bill climb even more dramatically,
from 17.6 percent in 1981 to 27.5 percent in 1988.
Harmful Spending & Complexity
Lower tax rates are important, but they are not the only critical issue.
Both the level of government spending and where that money goes are very important.
And even when looking only at tax policy, tax rates are just one piece of the puzzle.
If certain types of income are subject to multiple layers of tax, as occurs in the current system, that problem cannot be solved by low rates.
Similarly, a tax system with needless levels of complexity will impose heavy costs on the productive sector of the economy.
This WebMemo is excerpted from the author's, Daniel J. Mitchell's, Backgrounder, The Historical Lessons of Lower Tax Rates, published July 19, 1996.
The original publication, found here, contains footnotes and numerous charts.
Here are the charts.
13
posted on
04/09/2012 10:40:56 AM PDT
by
Yosemitest
(It's simple, fight or die!)
To: E. Pluribus Unum
How much revenue would Ubama collect at a 100% tax rate on everyone? That was a dream from his commie father.
14
posted on
04/09/2012 10:48:14 AM PDT
by
cynwoody
To: IncPen; Nailbiter
To: IncPen; Nailbiter
To: E. Pluribus Unum
That's an easy one. The answer is ZERO because no one would work to give up 100% of their earnings!
17
posted on
04/09/2012 11:30:44 AM PDT
by
USMA '71
((Re-elect no one!))
To: E. Pluribus Unum
That sums it up. The communists Soviet Union and China expedited getting rid of everybody they didn’t like — they lined up against the wall and shot them. Seems to take the totalitarians in the US a little longer to get there. Remember Bill Ayers and his pals wanted to eliminate 26 million Americans that they thought stood in their way of utopia? Liberalism is a death cult.
To: ProtectOurFreedom
Remember Bill Ayers and his pals wanted to eliminate 26 million Americans that they thought stood in their way of utopia? I am guessing that 26 million was the population of the US during Bill and Bernadine's glory days?
19
posted on
04/09/2012 12:19:43 PM PDT
by
E. Pluribus Unum
(Over half of U.S. murders are of black people, and 90% of them are committed by other black people.)
To: E. Pluribus Unum
LOL, it only FEELS like they’ve been around since 1860. These vermin are always with us, just like rats.
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