Posted on 07/18/2011 6:36:22 AM PDT by rhema
President Obama has been using the debt-ceiling debate and bipartisan calls for deficit reduction to demand higher taxes. With unemployment stuck at 9.2% and a vigorous economic "recovery" appearing more and more elusive, his timing couldn't be worse.
Two problems arise when marginal tax rates are raised. First, as college students learn in Econ 101, higher marginal rates cause real economic harm. The combined marginal rate from all taxes is a vital metric, since it heavily influences incentives in the economy—workers and employers, savers and investors base decisions on after-tax returns. Thus tax rates need to be kept as low as possible, on the broadest possible base, consistent with financing necessary government spending.
Second, as tax rates rise, the tax base shrinks and ultimately, as Art Laffer has long argued, tax rates can become so prohibitive that raising them further reduces revenue—not to mention damaging the economy. That is where U.S. tax rates are headed if we do not control spending soon.
The current top federal rate of 35% is scheduled to rise to 39.6% in 2013 (plus one-to-two points from the phase-out of itemized deductions for singles making above $200,000 and couples earning above $250,000). The payroll tax is 12.4% for Social Security (capped at $106,000), and 2.9% for Medicare (no income cap). While the payroll tax is theoretically split between employers and employees, the employers' share is ultimately shifted to workers in the form of lower wages.
But there are also state income taxes that need to be kept in mind. They contribute to the burden. The top state personal rate in California, for example, is now about 10.5%. Thus the marginal tax rate paid on wages combining all these taxes is 44.1%. (This is a net figure because state income taxes paid are deducted from federal income.)
(Excerpt) Read more at online.wsj.com ...
If the goal is to reduce the amount of tax revenue, and drive the country deeper into debt, at a faster pace, then this may be an excellent scheme.
Democrats eat the rich.
Once all the Dems’ slogans, lies and demagoging are gone, America is going to have to wake up and realize they have two choices:
either cut spending back to abotu 18% of GDP, which would include entitlement reform (ie, Social Security and Medicare aren’t going to look like what they used to look like) OR
raise taxes on EVERYONE—mainly the middle class—to pay for government spending at about 25% to 35% of GDP, which is what it will be if Social Security and Medicare aren’t reformed.
There is no more free ride. This article points out the folly of assuming we can have it all on the backs of “the rich.”
Tax the rich or thous hall not covet other people’s wealth. A country that turns from God as His way might in for a bumpy ride.
Not that we need any more proof...This administration is turning the constitution on it’s ear with it’s policy that we the people are here only to fund the government.
Someone has missed the entire recent discussion and elections last November. The house would never approve this. It is this scare mongering that is the problem.
Thanks for posting. Good article.
Thanks for posting. Good article.
This has been the goal all along. To completely reverse the Reagan era as if it never existed, just as the liberals/progressives/socialists demonized the roaring 20’s so we could never go back to those successful economic policies.
To liberals, the new deal years and the 70’s were the glory days. They hiked up spending so that taxes would have to be raised to cover it (and they love spending so it’s a win-win)and they are also keeping unemployment intentionally high so that revenues are kept low so that taxes have to be raised.
It’s a transparent, multi-prodded scheme to raise taxes.
The rich continue to live well no matter what. The Democrats with a 90% marginal rate in hand sit there smugly believing they've shown the rich "what for" ~ but they haven't.
Democrats are stupid.
“...Take a teacher in California earning $60,000. A current federal rate of 25%, a 9.5% California rate, and 15.3% payroll tax yield a combined income tax rate of 45%. The income tax increases to cover the CBO’s projected federal deficit in 2016 raises that to 52%. Covering future Social Security and Medicare deficits brings the combined marginal tax rate on that middle-income taxpayer to an astounding 71%. That teacher working a summer job would keep just 29% of her wages.”
And then each month, subtract from whatever is left over, the amount the individual pays for higher gas and food prices (from a devalued dollar), cap and trade effective taxes, Internet sales taxes, etc...
First, our Congress Critters have gotten away from what taxes are supposed to do. Our Founding Fathers wanted to tax only enough to fund the government. Our Congress Critters want to this AND use taxes to control our lives AND use taxes to get reelected (hence all the “tax breaks”).
This multiple purpose of taxing is what has gotten us into trouble. Of course, the Congress Critters will always say they are taxing, raising taxes, for our benefit - not theirs.
Second, the marginal tax rate has been much higher than what anyone is currently talking about. From 1950 through 1963 the top marginal rate was either 91 or 92 per cent. The economic pace of the nation reflected that excessive taxation rate too.
All governments must be put on a diet and kept there otherwise Congress Critters will again use taxation as a method of staying in power and our children and grandchildren will have to fight the same battle all over again.
I wonder what China’s effective tax rate is?
Just like reading history where in 1936 the US was just almost coming out of the Depression when tax rates went to 60% and put the US back in a double depression until WWII.
No! Hillary might come back to the USA.
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