While you are at it - look into tax avoidance, legal and illegal.
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.
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.
So high taxes prevent people from doing what they need to do.
Unjust in the extreme.
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.
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
It’s all in the semantics.
High taz rates can cause the prospecs to NOT be good.
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.
IBTZ??
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.)
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.
It isn’t how much you make, it’s how much you keep.
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.
If you want a documented example, take a look at the real history of the pilgrims in Mass.
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?
Zot!
Taxes represent a factor in the cost to open and operate a business. When the Business Plan is developed, part of it is start up costs, which includes taxes as well as projected net revenue which also factors in taxes.
If the projected revenue is <= 0, you don’t open the business. Many businesses operate on a 5-15% margin. A 4% higher tax could very well be the difference between the decision to open or not.
Your professor has clearly never owned a business nor done the proper due diligence to arrive at the decision to open one or not. His analogy is flat out inapplicable.
And also, taxes are a part of operating costs. What you give to the government is not available for supplies, goods or employees. Taxes certainly may be the difference between having 10 employees and having 12.
Finally, having a governmental philosophy oriented towards increasing taxes establishes uncertainty. No one wants to open a new business without being able to reasonably project costs, including and especially taxes, which is the major cost that is beyond the business owner’s control.
I hope that helps.
“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.”
If I was doing $100K-level work and someone was going to overpay me $50K, I think I’d not be a worried about the taxes, either.
BUT, if I’m doing $150K-level work, I’m going to negotiate ways to receive my compensation in forms other than taxable.
A raise is not the apropo analogy.
A more proper one would be paying for overtime.
Some folks will work more than 40 hours, or on weekends because of the time and a half rate.
How many would do it at a three-quarter time rate?