Posted on 08/23/2011 9:32:38 AM PDT by Harry Callahan SFPD
Now, there have been times in the past, when a raise actually meant a decrease in take-home pay. That's when you might fore-go the raise. I don't know how that happened, just remember some people at work talking about it a long time ago.
But even if your take home pay is more, you will still have less to spend than you would if the rate was lower. Your spending and investment helps grow the private sector, which means government gets more tax revenue from growth.
If government takes more, it leaves less for your own spending, hence less growth, and less taxes from growth. Private sector shrinks, leaving less people to tax. The question is why should the government get to spend the money you earned on stuff that you don't agree with? Do they spend it more wisely than you? Are their programs successful? They say our education system is failing, yet we have spent a plethora of dollars on it.
Let's take a different example. The government decides to raise everyones income tax rate by 10%. Now, your take home pay will be less, and you will have to adjust your budget. So you will have to consume less - consumption drives our economy - recession continues- less people paying taxes, more people drawing unemployment.
Another scenario: An employer has to pay necessary business expenses, and his personal bills, and life style he wants to support. When he has to pay more dollars in taxes, then he has to make adjustments. Maybe he fires the book keeper and makes his wife do the books. Maybe that 10% was going to be used for expansion and new hiring that doesn't happen.
Raising taxes causes contraction in the private sector economy. Runaway government spending eventually causes runaway inflation; wages and business profits do not keep up. The inflation of the 70’s and 80’s destroyed years of savings and gains in wages.
Tax reform in 1986 caused my family to pay $4000 more per year in taxes. We had no discretionary income left. So we just stuck to necessities, avoided new debt, reduced insurance costs by raising deductibles, canceled magazine subscriptions etc etc.
People in our town quit eating out, restaurants closed. Some people cut their own hair. Barbers and Beauticians suffered.
Now, sometimes people do turndown promotions, because the new job will require more effort, and the extra money is not worth the extra effort etc. The teacher's example is a narrow scenario that does not reflect all the permutations that exist, particularly as it pertains to the small business man.
I think that as long as a person is satisfied with his current level of income and putting forth the most effort he is willing to give, he'll stay put. It is not all about the higher tax rate. There are quality of life issues too.
And I do know people who simply chucked a good job making lots of money for a lesser paying job that they were happier with, especially if they had a good retirement nest egg.
FR is not a LIBERAL debating society. — Jim Robinson
In any event, the core point you made back then is one we all embrace as Constitutional Conservatives:
"Our unalienable rights are not subject to debate and are NOT negotiable."
Free Republic is greatly appreciated for its unwavering pro-God, pro-family, pro-life and pro-liberty stance. Speaking for myself, I like that it's not "fair and balanced" since the biases are on the right side against liberalism and the depravity of homosexuality in all forms.
That is true. We are mostly seasoned citizens on this forum and have been a lap or two around the block. We already know the pitfalls and failures of godless liberalism/socialism and have long ago aligned ourselves with God, family, country, individual liberty and limited government as defined by our founders in the constitution. We are conservative activists not a liberal debating society. We do not debate those who wish to follow a different way, we zot them.
The Democrats know best what entrepreneurs and businesspeople need to succeed and create jobs.
Here is a partial list:
1.) Heavy regulation, aggressively enforced
2.) An illiterate inner-city workforce
3.) Billboards along the highways of turd-hole overtaxed cities touting what a great place it is
4.) High sewer taxes
5.) Aggressive OSHA enforcement
6.) Unionized workforce
7.) High levels of government service provided by high property taxes
8.) High corporate taxes to pay for more government services
9.) An aggressive and litigious legal sector that enforces any claim of racism or sexual harassment aggressively
10.) Affirmative Action
11.) Mandatory xompany paid sick leave
12.) Extensive pregnancy leave for women or men
As an entrepreneur, I don’t understand how someone could be successful and create lots of jobs without all of that.
Makes sense, no?
< /s>
Add the minimum wage to that list. Liberals have the wrongheaded notion that depriving an employer and employee to set a market-driven wage is somehow beneficial.
Along with forced unionism, the minimum wage (enacted by the Franklin Dialbo Roosevelt administration in 1936) have been doing a superb job of reducing America's economic might...just as the DemonRATS envisioned. They just don't understand that liberty is a key ingredient to our economic power.
To be added or removed from the VK/ZOT ping list, FReepmail Darkwing104.
During the Clinton years.. I worked fewer days because of the tax rates.
Take home pay for working 24 hrs was the same as for working 40.
Screw it.. I took the time off.
Simple. Tell your numbnuts professor to find one REAL company that will give you a 50% raise. And one company in this world. Not the one she's in where there's Pink Striped Flying Unicorns that poop $100 Bills.
Your prof is correct. Assuming the rates that you indicate are marginal rates, the decision is whether to accept 65% of the $50K gross raise, $32,500, or decline the raise and get nothing. With the numbers you indicate, even average rates would work: the decision would be between total after-tax compensation of $75K and $97.5K, but that would imply a marginal rate of 55% on the $50K raise [ie, (0.35*150K-0.25*100K)/50K]. In either case, it is a trivial decision. Even if the raise were taxed at a marginal rate of 99%, very few people would turn down free money.
But your prof is not making a logical argument for high marginal rates simply because the employee need do nothing new in exchange for the raise. He just gets the raise for what he was already doing.
But let’s consider an alternative scenario. Let’s say the employer offered a $50K raise, which would be taxed at a marginal rate of 35%, but the job requirement would require 50% travel. In this case the employee has a real decision to make. The decision is between the inconvenience of a job that requires travel and the benefit of a higher after-tax salary. This is a subjective decision, but its outcome for some individuals will certainly be affected the marginal tax rate. An individual who loves travel or who hates his wife and kids would accept the deal regardless of marginal after-tax income. An individual who for health or family reasons cannot travel would reject it regardless of marginal after-tax income. But most people fall between those two extremes; their decision is subjectively determined by the amount of after-tax income they could enjoy, and this is partially determined by the marginal tax rate.
I have first-hand experience with this scenario. I worked 60-84 hour work weeks (ie, 6 tens and 7 twelves) in Saudi Arabia for several years early in my career. Because Saudi has no income tax and the US had a Section 911 exclusion on part of the earned income abroad, the marginal rates were fairly low. With apodictic certainty, I can say that I would have done this if the income were taxed at ordinary marginal rates. I am almost equally confident that my employer would not have increased compensation rates to make it attractive to me. Rather, it would have been cost-effective to replace the expensive American with a Brit or a Dutchman.
That was 30 years ago. I saved the money I earned in Saudi Arabia and learned about investing. Over the years investments that I made grew such that I now have significant investment income. I receive this income regardless of whether I earn a salary, so the effective tax rate on all salary and wage income is now at the top marginal rate. Your professor would say that rate is 35%, but that would be incorrect. You see, I am self-employed and my earned income is also subject to self-employment tax of 15.3%. Add these two together and you get a 50.3% marginal tax rate on self-employment income. Then, there are state income taxes on top of that. Sure, part of the self-employment and state income taxes are deductible, but there are also deduction phase-outs that offset that deduction. I run TurboTax simulations every year, and for the past several years my marginal rate has been as high as 52%. I am a minority partner ins my own livelihood; my masters in Washington own the majority share of the fruits of my labor.
Since learning that my marginal tax rate ran as high as 52%, I have intentionally cut back significantly on the amount of work that I do. I could get out and sell more business, but what’s the point? This especially true since the 2008 financial collapse and the Obama election. There’s no point in saving and investing beyond one’s basic needs under this regime. We all know that Social Security and Medicare are going to be means-tested. The prospect of future means-testing provisions is the equivalent of yet another tax on individual savings and investments. And, if there’s anything left over when I die, the Feds will want half of that, too.
One can imagine, and indeed there have been, tax regimes where the marginal rate is over 100%, but that’s an unusual scenario. More common in history are tax regimes that effectively imposed 100% marginal tax rates. In the Soviet Union and Mao’s China everyone in a particular class of employment got the same wage regardless of how much they worked. Both were economic trainwrecks, and have improved since adopting more reasonable tax structures. Russia’s personal income tax is just a flat 13%, but they rely more heavily on VAT rather than income taxes. Still-communist China now has a progressive income tax schedule with cap of 45% for millionaires, which is lower than a small businessman like me faces in the USA.
Your professor is a knucklehead if he does not think that individuals do not respond to incentives.
I agree with you!
The line of reasoning in the referenced article is flawed at every step.
In the case of HP, the partners incorporated the firm in 1947, which I suspect was about the time it started to show a profit. As tech entrepreneurs, I am sure that Mssrs. Hewlitt and Packard were well aware that the big money is in capital gains, which is taxed at a separate rate. In 1947, the capital gains rate was 25%. That was the relevant for their decisions, not 91%. The 91% figure was only relevant in deciding how much salary they should pay themselves.
I challenge anyone who advances the idea touted on the referenced article to supply documentary evidence that either Hewlitt or Packard or any of their heirs ever paid marginal income taxes at the 91% rate. Absent that, I call BS on their argument.
I’m hearing from family members in DC that they FELT this ZOT.
OOPS!
With apodictic certainty, I can say that I would NOT have done this if the income were taxed at ordinary marginal rates.
Are liberals so stupid that they actually fall for this line of reasoning? Or are they merely so stupid that they think that other adults will fall for this line of reasoning?
Leave it to a “professor” to completely disregard the additional WORK that comes with an increase in compensation. If a family man is required to be traveling 3 weeks a month, he very well may have considered that pay increase worthwhile before the taxes negated a portion of it.
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