Posts tagged ‘tax rates’

Tax-Men in Black Higher Taxes are Bad For Will Smith and the Poor

Tax-Men in Black: Higher Taxes are Bad For Will Smith and the Poor

‘Men in Black’ star Will Smith was asked on French TV about whether he would be willing to pay more taxes, especially at the levels proposed by French President Hollande. Wait until you hear what Smith said about paying a 75% income tax. Alfonzo Rachel tells Will Smith why higher taxes are not good for the government or the poor.

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Will Taxing the Rich Fix the Budget

Will Taxing the Rich Fix the Budget?

In this short video Professor Antony Davies, Duquesne University, explains why arguing about taxing the rich is a waste of time and diverts our attention from the real issue, spending.

Here are the points that Professor Antony Davies makes.

Can we balance the budget by taxing the rich?

In 2009, the richest Americans (top 5%) paid approximately 29% of their income in taxes. The poorest Americans (bottom 20%) paid -1% of their income in taxes (paid nothing and received money back.) The average for 95% of Americans is 10.8% compared to the the top 5% of Americans who pay 29%. This means the richest Americans are taxed at a rate 3 times higher than the rest of America.

In 2009, the deficit for the federal government was $1.5 trillion. Let’s see how much we would have to raise tax rates on the rich to balance the budget. We start by raising taxes on the rich from 29% to 44%. This would only raise $400 billion and would cut the deficit from $1.5 trillion to $1.1 trillion.

How much, then, would we have to tax the top 5% to balance the budget? We would have to tax them at 88%. The households in the top 5% earn an average of $300,000. The 88% tax would reduce their income to $36,000, making the average rich household worse off than the average household.

In the 1960s the top marginal tax rate was 90%, but with deductions and allowances, the effective rate was 50%, far lower than the 88% we would need to tax the rich. In addition there were only about 5,000 households in the 1960s that earned enough to be in the 90% bracket. To balance the budget today, we would have to tax 9,000,000 households. That would require us to include those making $100,000 and $180,000, in effect doubling their taxes.

Arguing about taxing the rich is a waste of time and diverts our attention from the real issue: spending. The budget deficit is so large there aren’t enough rich people to tax. Our only solution is to reduce spending.

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Will Higher Tax Rates Balance the Budget

Will Higher Tax Rates Balance the Budget?

Professor Antony Davies, Duquesne University, explains why higher tax rates won’t help to balance the budget in this short video.

Here are the points that Professor Antony Davies makes.

The federal government has increased the amount of tax revenue it has collected over the last fifty years. That is because our economy and population has grown over that time period, as has inflation.

A more useful way to analyze tax revenue is to track tax revenue as a percentage of GDP. Each year the government takes a slice of the economy for itself. How big is that slice? That is what percentage of GDP shows. Over the past fifty years, the government’s slice of the pie (percentage of GDP) has been about 18%.

During periods of budget deficits, some politicians call for raising tax rates. Is this effective? In the 1950s the top income tax rate was 90%. It fell to 50% in the 1960s to the 1980s. During this period the government’s slice of the pie (percentage of GDP) was 17%. In 1987 the top tax rate was lowered to 39%, then later to 28%, then back up to 40%, then down to 35%, where it is today. During this period the government’s slice of the pie (percentage of GDP) was around 18%.

The conclusion? It doesn’t matter whether the tax rates on the rich are high or low. The government’s slice of the economic pie stays about the same. The same applies to average income tax rates (not just top rates), capital gains tax rates, and corporate tax rates.

What is the lesson? If we really want to balance the budget, we need to grow the economic pie, not determine how to take a bigger slice. The bigger the economic pie grows, the more tax revenue the government gets. 18% of a large pie is more revenue than 18% of a small pie.

How do we generate a bigger economic pie?

  • Lower tax rates
  • Simply the tax code

 

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Three Reasons Why We Shouldn’t Raise Tax Rates

Three Reasons Why We Shouldn’t Raise Tax Rates

This week’s lesson explains why we shouldn’t raise tax rates or “soak the rich.” It counters the class warfare being waged by the current administration. To start out, go to the Three Reasons section, where I provide three short videos on the following topics:

  1. Taxing the rich discourages investment and will cause tax revenues to fall.
  2. Taxing the rich discourages spending.
  3. If we taxed the rich at 100%, it would not reduce the deficit.
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10 Golden Rules of Effective Taxation

10 Golden Rules of Effective Taxation

Arthur B. Laffer, Stephen Moore, and Jonathan Williams in the latest publication of Rich States Poor States1 by the American Legislative Exchange Council (Alec.org) provide the 10 Golden Rules of Effective Taxation:

  1. When you tax something more you get less of it, and when you tax something less you get more of it.
  2. Individuals work and produce goods and services to earn money for present or future consumption.
  3. Taxes create a wedge between the cost of working and the rewards from working.
  4. An increase in tax rates will not lead to a dollar-for-dollar increase in tax revenues, and a reduction in tax rates that encourages production will lead to less than a dollar-for-dollar reduction in tax revenues.
  5. If tax rates become too high, they may lead to a reduction in tax receipts. The relationship between tax rates and tax receipts has been described by the Laffer Curve.
  6. The more mobile the factors being taxed, the larger the response to a change in tax rates. The less mobile the factor, the smaller the change in the tax base for a given change in tax rates.
  7. Raising tax rates on one source of revenue may reduce the tax revenue from other sources, while reducing the tax rate on one activity may raise the taxes raised from other activities.
  8. An economically efficient tax system has a sensible, broad base and a low rate.
  9. Income transfer (welfare) payments also create a de facto tax on work and, thus, have a high impact on the vitality of a state’s economy.
  10. If A and B are two locations, and if taxes are raised in B and lowered in A, producers and manufacturers will have a greater incentive to move from B to A.

Note #1 and #10. If you tax something you get less of it, and if location A has lower tax rates than Location B, manufacturers will move to Location A. The conclusion? If we raise tax rates, we will have fewer jobs.

To Read More

Arthur B. Laffer, Stephen Moore, and Jonathan Williams, Rich States Poor States; (American Legislative Exchange Council, 2012) Available at: http:// http://www.alec.org/docs/RSPS_5th_Edition.pdf (May 4, 2012)

References

  1. Rich States Poor States; (American Legislative Exchange Council, 2012) Available at: http:// http://www.alec.org/docs/RSPS_5th_Edition.pdf(May 4, 2012), ix-xii

 

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Should We Soak the Rich

Should We Soak the Rich?

The Goose That Laid the Golden Eggs is one of the most famous of Aesop’s fables. The cottager and his wife kill the goose to get the great lump of gold they think is inside. However, they find it is no different than any other goose. Their greed deprived them of a future steady income. So it is with the notion that we must tax the rich to pay for our out-of-control spending.

Raising tax rates on the rich will kill the golden goose. Increasing tax rates will discourage investment, cause total tax revenues to fall, and will increase, not decrease, the deficit. Here are three reasons why:

  • More progressive tax rates are not fair
  • We end up taxing people who are not really rich
  • History has proven that increasing tax rates causes revenues to fall

More progressive tax rates are not fair

According to the Patriot Update1 , “The top 1% of Americans pay 40% of all federal income taxes, and the top 10% pays as much as 70% in total. Conversely, the bottom 40% pays close to nothing.” How are the rich not paying their “fair share”? Why should we tax them more? Answer: because we can. They only have 1% of the votes.

The United States already soaks the rich, more so than any other developed country. As the following Newsmax magazine chart2 shows , the tax burden of our 1% is higher than every other developed nation. The 1% in the United States supply 45.1% of all taxes, whereas in socialistic Sweden, the 1% only supply 26.7% How are the rich in our country not paying their fair share?

As the Newsmax article explains, the rich should not be targeted for higher taxes. It’s not just the rich who are getting richer in the U.S. The poor are getting richer too. Plus, the rich aren’t all born rich, and don’t all stay rich. Of the 400 richest people listed in the 2007 issue of Forbes magazine, only 32 were included when the list began in 1982. “Only 18% inherited their whole fortune, while about 70%—people like Amazon founder Jeff Bezos and Dell computer founder Michael Dell—amassed fortunes by giving the rest of us products we want.” 3

We end up taxing people who are not really rich

The Democrats propose raising taxes on families making $250,000 a year and up. As Thomas Sowell points out:

Rich means having a lot of wealth. But income taxes don’t touch wealth. No wonder some billionaires are saying it’s OK to raise income taxes. They would still be billionaires if taxes took 100% of their current income.

What those who are arguing against “tax cuts for the rich” are promoting is raising the tax rates on families making $250,000 a year and up. A husband and wife making $125,000 a year each are not rich. If they have a kid going to one of the many colleges charging $30,000 a year (in after-tax money) for tuition alone, they are not likely to feel anywhere close to being rich. 4

History has proven that increasing tax rates causes revenues to fall

As Thomas Sowell points out, in 1921 the tax rate on people in the top income bracket was 73%! Here was the consequence of those high tax rates, “The number of people with taxable incomes of $300,000 a year and up—equivalent to far more than a million dollars in today’s money—declined from more than a thousand people in 1916 to less than three hundred in 1921.” 5 What happened? Did all those rich people go broke? The answer was of course not. They merely took the money they had invested in the economy (in businesses creating jobs) and invested it in tax-exempt securities, such as municipal bonds (in government creating red tape).

As the late Chuck Colson explains, the government’s role is not to reduce income inequality through progessive tax rates. “At the most basic level, government’s job is to preserve order, do justice, and restrain evil.”6  Equality in the U.S. means legal and political equality. Each person has one vote and the rules are the same for everybody, no matter how much they make. The incentive behind taxing the rich is really no more than class envy.

References

  1. Nathaniel Davidson, Taxing the “rich”? No, ruining America! (Patriot Update, December 7, 2010) Available at: http://patriotupdate.com/oldsite/exclusives/read/288/Taxing-the-rich?-No-ruining-America(May 1, 2012)
  2. Stephen Moore, The Lie Behind Obama’s Class Warfare (Newmax, May, 2012), 56.
  3. Ibid, 57.
  4. As cited in Nathaniel Davidson, Taxing the “Rich” – Part 2 (Patriot Update, December 21, 2010) Available at: http://patriotupdate.com/articles/taxing-the-rich-part-2(May 1, 2012)
  5. Thomas Sowell, Back to the Future: Part III (Townhall, September 15, 2011) Available at: http://townhall.com/columnists/thomassowell/2011/09/15/back_to_the_future_part_iii/page/full/(May 1, 2012)
  6. Chuck Colson, Equality and Envy: The Proper Role of Government (BreakPoint, November 15, 2011) Available at: http://www.breakpoint.org/bpcommentaries/entry/13/18229(May 1, 2012)

 

 

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