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Friday, July 13, 2012

Don't Tax the Rich

Taxes reduce production by the wealthy, the more you tax the less you get. A political article of faith hammered home every day in the print and cable owned by the wealthy. Reading the data analysis by economist there is no support for the idea in factual data. This idea falls into the category of “My mind’s made up, don’t bother me with facts”.
So how about a thought experiment? You are given a pay raise that takes your marginal tax rate to the next level. You currently make $17,400 a year, the raise will take you to $20,000 a year giving you a $217 a month increase. Your new marginal rate will be 25%. Your actual take home increase will be $162.50 a month. Do you refuse the raise? Will you now start slacking on the job? If you answered “no” to either question then you have not followed the law of economics that rules the wealthy. A “job creator” would stop working. I always took the raise and worked harder hoping for another raise. Maybe that explains why I am not a billionaire. At what point would you refuse the raise? 30% or 40% or 60% or any number less than 100%?
I have never seen anyone refuse a raise or promotion that increased their marginal tax rate. Perhaps since the tax rates hikes stop at $388,350 all money above this is taxed the same. Increasing the income of someone making a half million a year to one million a year will not cause a rate increase. You will take home $325,000 of the extra $500,000. The Laffer-Curve Economic theory clearly predicts that you will say “no” and work with less enthusiasm. Above a certain point "P", "all people would choose not to work", when I ran my company I would try to make money first and worry about the taxes later. Apparently I had this backwards.
The "Don't Tax the Rich" idea has a long history. Medieval nobility firmly believed in no taxes on themselves. Serfs paid all taxes, usually everything the serf had. The aristocracy were the ultimate job creators and all wealth trickled down from the King. Too bad Napoleon came along and showed the vast military that a Democracy could field. The morale, the esprit de corps, which could be mustered by people that thought of themselves as free, this of course, ruined everything for the nobility. For the last two centuries the uber rich upper class has been fighting to free us from the curse of Democracy. Capital must be free, not people.

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