Do high ZOT taxes discourage trolls?

High marginal tax rates ^ | 8/23/2011 | Inspector Callahan

[Harry Callahan SFPD]

"The fact is the idea that tax rates have anything to do with business creation is a myth. Nobody who has a great idea and good prospects is going to not go for it because of tax rates." -quote by a Liberal

[Harry Callahan SFPD]

How do higher marginal tax rates deter hard work or ingenuity? Studies and anecdotes would be very helpful! I'm a law student and today our professor said that no one is going to turn down a big raise just because they are going to be hit with a higher tax rate. The example she gave was this: You're making 100K at 25% rate. If you have a chance for a raise to 150K at 35% rate, everyone is going to take the raise. They just won't care about taxes. How do we prove that wrong?

[RightGeek]

While you are at it - look into tax avoidance, legal and illegal.

[Huck]

Tax rates don’t discourage me from doing anything. I don’t let the gubmint ruin my day. I don’t like the tax rates, but I’m not going to sit and do nothing.

[Opinionated Blowhard]

Why did Bill Hewlett and Dave Packard start HP in a garage in 1939 with a top rate of 79 percent and then take the company public in 1957, during which time the top rate rose to 91 percent? 91 percent!

Uh, perhaps because they didn't really pay 91% of every marginal dollar to Uncle Sam. The 91% tax code of the 50s was full of loopholes that they took advantage of. Look to Europe for a truer example of what happens when you raise rates and eliminate loopholes. The rich leave in droves. Swedes go to London or New York, the British go to the Caribbean, even the Socialists.

[the invisib1e hand]

everyone's gotta work. high taxes destroy wealth, and wealth creates jobs.

So high taxes prevent people from doing what they need to do.

Unjust in the extreme.

[Raycpa]

The problem with your professor’s example is that it is presented with no cost or risk to the worker. That is not real life. In real life in order to get a raise one normally has to work harder, longer and spend time and money improving one’s skills.

My very first client was a small manufacturer/fabricator. He had a successful small business and about 5 years left before he wanted to retire. His major customer came to him with a proposal that would increase his production two to three times what he was doing.

In order to meet the production requirements he would need to triple his space and hire two to three skilled workers. The extra work would require incurring lots of risks and hassles. After looking at his after tax income which caused him to have higher brackets, he declined the work and went out of business.

I also have many clients who end up owing the IRS lots of money for back taxes. Between having to pay old taxes and current taxes, they lose their incentive to work. They rather stay home or work less.

Your professor gave you a hypothetical that does not reflect the real world. He has either set you up because he wants you to think or he is an idiot and you best proceed with caution on anything he actually teaches you.

[ml/nj]

How do higher marginal tax rates deter hard work or ingenuity?

Drive around NJ and look at all the commercial property that's "Available." That's how. Businesses used to move into NJ. Now they move away.

ML/NJ

[chesley]

It’s all in the semantics.

High taz rates can cause the prospecs to NOT be good.

[MNJohnnie]

Your Poof here is making an intellectually dishonest comparison. The actual comparison is this. IF a business owner can make 250,000 and get taxes at 35% but has to work 60 hours a week to do so or can make $200,000 working 40 hours a week and only get taxed 25% which is he going to do?

People are not going work harder and be be more production just to hand off more of what they create to a greedy grasping Government bureaucrat. It's against human nature to work harder for less reward.

I always have to laugh that the same brain dead Liberal political drones that tell us raising taxes on tobacco will curb smoking turn right around and try to argue that raising taxes on income has no next impact on economic activity.

[PieterCasparzen]

You're making 100K at 25% rate. If you have a chance for a raise to 150K at 35% rate, everyone is going to take the raise. They just won't care about taxes. How do we prove that wrong?

I'm a consultant, a 1-person corporation. I bill a flat hourly rate, no overtime - I send a bill from my company based on how many hours of service I provide. Like a lawyer or accountant.

Now, Say I billed 2,400 hours last year. I'm working more than 40 hours per week - see ?

Now, I have an opportunity to take on more work, a big project. My revenue last year was $192,000 at $80 per hour. Now, I'm looking at another 500 hours of work, if I can handle it, at the same rate. That will bring in $40,000 more revenue, for an annual total of $232,000. But I will be working about 10 EXTRA hours per week to gain that extra 40 grand. 500 hours - remember from elementary school there are 52 weeks in a year ?

And, yes, I then start thinking about income taxes. My Federal AND State income tax will eat into that 40k. And - surprise, surprise - it's NOT at the lowest rate, it's at a high rate. Do I want to work every saturday, all day, all year - and wind up with about $500 in my pocket for that whole day being shot ? I'm already making $192k per year, even if I don't work Saturdays.

Well, what if get real smart - and I subcontract that extra work to someone else. Another consultant. It could be a 3-month gig. What a great Idea ! But what do I pay him ? What will be left for me ? Duh... he has to be fully incorporated and have liability insurance, worker's comp insurance, etc. A full, complete corporate entity. Then I can pay him $70 an hour and keep $10 for myself - IF I can get him to go for it. Woo-hoo ! I made an extra $5,000 dollars. Get it ? And if he's not incorporated, I need to pay him on a W-2 basis, as a salaried, exempt employee (since he's in I.T. and he's making his own decisions - I'm not managing him at all). Well, then I have something called Employer contributions for SS/Med. So if I pay him $2,800 per week gross (70x40hrs), it's going to cost me a bit more than that because of employer contributions to our wonderful Federal withholdings.

Now, here's the real kicker. Since I have less than 6 shareholders in my corporation - there's just 1, me - and my personal services account for 20% or more of the Revenue of the corporation - it is a "personal services" corporation. Guess what the corporate tax rate is on ALL profit the corporation shows at the end of the year ? Bingo - the highest rate ! So, I can either take it out as salary, which puts me in a higher bracket, the higher I go in Revenue, or I can leave it in the corporation as profit - and pay the top tax rate. Nice choice.

Do you see how extra work is getting marginally less and less worth it ? I would be a job creator if I got work and hired other people. I would be generating economic activity if I took on more work. But the more I make, the higher my tax rate goes. Forget it, I'll work reasonable hours.

[chesley]

IBTZ??

[Gaffer]

Don’t know about everyone else, but I’m retiring in December (changed from this month) three years early. I am tired of losing over 60% I make for no value added. I’ve paid off ALL my debt and will downscale accordingly and live off the amount I get for 62 from SS and from what I’ve saved. The only bills I’ll have are utilities and car/house insurance plus food and the occasional tank of gas (last year, my gasoline bill was almost $7000....I was spending 25% of my day to make 40% of my salary.)

[mamelukesabre]

you can’t prove it wrong because it isnt’ wrong the way it is stated.

The problem is your professor is an idiot and/or a liar.

If this person was honest, the example would not be given to you in that way. First of all, not EVERYONE gets a 50% raise. you have to compete for the raise in the form of a promotion. but with the higher tax rates, the raise is costing the employer more than the employee is rewarded. The employer gets less effort from his employees per additional dollar spent on raises. This is not good for the company and results in less raises, less effort/excellence from employees, less money for investment and job creation which itself results in less raises and less effort/excellence from employees. It is a domino effect and ends up making a huge huge difference in a large economy.

[jessduntno]

It isn’t how much you make, it’s how much you keep.

[Raycpa]

On the higher tax rates before Reagan. I was preparing taxes then. Trust me, no CPA would keep their client if their client ever had to pay the higher marginal rates. We had income averaging, phantom losses, virtually no alt min tax. Retirement plans to shelter income. Real estate ventures to shelter income. Income tax credits on equipment purchases and low income housing to shelter income. Income splitting devices to funnel income to kids. Unlimited interest expense deductions. There were income deferrals.

In short, the marginal rates were merely window dressing that everyone knew were crap. Heck, that is the main reason we have the alternative minimum tax. Everyone knew no one paid those rates and the alt min tax tired to remedy it.

[Raycpa]

If you want a documented example, take a look at the real history of the pilgrims in Mass.

[fabian]

There never was nor should there ever be a tax on income! The founders never included that and actually revolted over a much smaller sales tax. It is criminal to go into a workers paycheck.

[OB1kNOb]

Those much higher tax rates worked so well for President Hoover during the early years of the Depression. It really spurred the economy into high gear and we came out of the Depression rocketing upward years ahead of schedule on the back of a blazing economy as soon as those tax rates were raised from 25% to 63%. Can your professor detect sarcasm?

[Admin Moderator]

Zot!

[tomkat]

good shot .. center mass too !