And it’s Nick in a knockout. As always, though, phrases like this seem jarring, and oxymoronic:
What I showed in the post is that in fact federal revenue increased nicely under Bush, despite the tax cuts. Revenues tailed off at the end of his reign of error, because of the recession and the financial crisis (caused largely by idiotic government policies).
Emphasis mine.
How can federal revenue increase when we cut taxes? The answer is that we didn’t cut taxes. We increased taxes. What we cut was the tax rate. This misleading phraseology makes me crazy and if we could get it right, we’d have a strong rhetorical upper hand, but both conservatives and libertarians almost always feed the left with it. As I wrote a while ago:
Both sides of the aisle continually make the mistake — though it’s no mistake on the part of the Democrats — of confusing a tax rate cut with an actual tax cut. Here is a commonsense, as opposed to the Alice-in-wonderland, definition of a real tax cut. It is a reduction in the amount of taxes paid. Conversely, a tax increase is an increase in the amount of taxes paid to — and revenue received by — the government.
That’s it. Almost too simple, isn’t it?
When a politician says that he’s going to either cut or increase your taxes, he is engaging, wittingly or not, in a conceit and a deceit. He says it as though he has the power to do any such thing, when in fact he does not. He has no power except to reduce or increase the rate at which you pay taxes, whether on property, income, or whatever.
Think of it as the difference between a joystick and a mouse. With a computer mouse, you can point directly to the place that you want to be on a screen. With a joystick, you can only control the rate at which you move toward it, and in so doing, the target may move, and it may move faster or in a different direction than you can keep up with using your rate control. Politicians talk about tax cuts as though they have a computer mouse that allows them to pass a law and a specified amount of revenue will roll in, but the reality is that they have a slow joystick, with a nebulous relationship to the eventual goal.
For instance, he can raise your top income tax rate from, say, thirty to ninety percent. Did he increase your taxes by that amount? Only if you’re as stupid as he is. More likely, you’ll just cut back on how much you work, settle for the lower bracket, or do more work off the books, and he’ll end up getting less in taxes from you than before. So did he increase your taxes? Nope.
Similarly, he could cut your rate, and you might be motivated to go out and earn even more, perhaps enough more that you pay more taxes, even at the lower rate. So did he cut your taxes? No. But the wealth of the nation — including your own — was increased.
I also note in that piece the implicit assumption of the statists that all of your wealth belongs to them, and that you should be brimming with gratitude for whatever they allow you to keep, an assumption that some in the UK want to bring to its logical conclusion:
The UK’s tax collection agency is putting forth a proposal that all employers send employee paychecks to the government, after which the government would deduct what it deems as the appropriate tax and pay the employees by bank transfer.
But of course! Why hasn’t the IRS thought of that?
Anyway, the simple addition of the word “rate” as a modifier of “cuts” in Nick’s sentence renders it non-oxymoronic and sensible, and more care with phrases like this in general would reduce both confusion and obfuscation on this issue by the Chaits of the world.
Personally I like to see the Income Tax eliminated and replaced with a simple national sales tax. That way hard work, thrift and saving would be rewarded instead of spending.
The nice thing about a consumption tax is it makes it much easier to see that lowering the rate can increase the revenue.
Rand – your “rate vs. cut” argument assumes that one’s income is variable. Salaried employees, for example, get paid a fixed amount. Most hourly workers need to work a fixed number of hours per week to get benefits, and most people, however they get paid, need a fixed sum of money to cover their expenses. In all these cases, changing the tax rate is the same as changing taxes paid.
Your argument also assumes (although less forcefully) that taxes are the primary factor in determining one’s income needs. There are a number of factors that determine how much income is “enough,” most of which factor into lifestyle choices. Do you want to drink beer or Scotch? Drive a new car or a 10-year-old beater?
Rand – your “rate vs. cut” argument assumes that one’s income is variable.
For the people whom the statists like to target, and who pay most of the taxes (“the rich”), it generally is.
Rand – your “rate vs. cut” argument assumes that one’s income is variable.
Again with the strawman? It doesn’t assume anything of the sort. It’s about total revenue. The taxrate is applied to groups of people. It is the groups income that is variable even if not individuals within those groups.
You should try weaker strawman, easier to knock down. These are too buff for ya.
You also assume salaried employees have no choices.
In all these cases, changing the tax rate is the same as changing taxes paid.
This involve the stock insanity of assuming a constant pie. New hires and raises are more common in periods of growth, and firings are more common in periods of stagnation or shrinkage.
All four of the non-static items mentioned are affect by taxation policy. Duh.
Do you want to drink beer or Scotch?
If you drink enough Scotch to exceed your total taxes, either seek serious help or get a new job.
“But of course! Why hasn’t the IRS thought of that?”
Maybe it has something to do with the 2nd Amendment and the lack thereof in UK!?!?!?
For practical purposes, the IRS already does what the UK proposes. The withholding tax (originally suggested, I have read, by Milton Friedman of all people!) does essentially the same thing as sending the checks to the government. And people who earn non-salary income are already required to pay up four times a year. Not much difference, when you get right down to it, although what the Brits propose is probably more insulting.
I would argue that if John Q. Public had to pay in cash, or write a check, every pay period, for what is now withheld “painlessly”, this country would have had the mother of all tax revolts long before the TEA party became necessary.
I am generally conservative but this type of analysis drives me crazy:
“For instance, he can raise your top income tax rate from, say, thirty to ninety percent. Did he increase your taxes by that amount? Only if you’re as stupid as he is. More likely, you’ll just cut back on how much you work, settle for the lower bracket, or do more work off the books, and he’ll end up getting less in taxes from you than before. ”
For a huge chunk of the economy (probably a large majority) there is simply to immediate connection between the amount of work performed and income. Most people are on salary. If they work hard, they get paid. If they do the minimum, they get paid. There is no incentive to work harder based on tax rates. The salary is the same no matter what the tax rates are
About 3 years ago I tried to make this same, simple point when talking to a couple of Dumocrats. They actually had difficulty understanding the situation. I guess they had heard the phrase “Bush tax cuts” for so long that their imaginations were kaput. I pointed out to them that total revenue to the U.S. Treasury had (at that time), set quarterly records for at least three years running. Still, the U.S. had deficits, due to the rash spending of the Bush Administration and the Republican Congress.
Since that time, of source, revenue has decreased, wile spending has exploded.
Thanks for pointing this out. JFK was intellectually honest back in ’62 when he argued for a reduction in the marginal rate.
Do you want to drink beer or Scotch?
Black coffee please.
Mr. Gatz …
gee, why do you think that some of those on salary work harder than their fellow workers bee’s ? could it be that that employee wants a promotion and/or a raise ? Nice marxist view of the world of workers you have there but it really is not that simple in the real world …
If you do the minimum you get paid. Until the next round of layoffs. Management normally knows who does the minimum, and finds ways of protecting productive workers. One small business owner went around after the recent election and made notes of the OBAMA bumperstickers in the parking lot. When the layoffs came, so he could pay his taxes from reduced sales, he knew who the prople were that would have no problem standing in line for a government handout.
Okay Chris, raise my tax rate. You will then see a corresponding increase in my pre-tax 401(k) contribution. Because if the choice is the G or me, I win.
Oh!! For tax purposes, my income just became variable.
I’m retired; the “Fair Tax” is a catastrophe for people like myself. I lived my entire life paying income tax, and made my retirement plans based on having paid my fair share over the years. Now, people want to abolish the income tax and tax my savings at a rate probably close to 20%. Thanks, but no thanks. Inflation is a tough enough enemy to fight, throw in losing another fifth to taxes and I’ll take up drinking fifths… I’ll be on the dole for the first time in my life. Odd how unappealing that is.
As for your contention that politicians only raise rates — that’s, to be polite, a crock. If the current rate is zero, like what the renters tax I paid last year, and goes up to 7+% I think that counts as a tax hike. True. the rates were raised, but what used to be a zero tax is now something much higher.
The fact is that the government’s clear intent is to part everyone from any money they don’t need to live this month — they intend on destroying savings, investments, and pretty much everything else. What was the savings rate of the Soviet Union when it fell? What is it now in Cuba or North Korea? And it doesn’t seem to make any difference to which party the looters belong to either.
There are a lot of people whose salary isn’t fixed. Some are hourly employees who have the opportunity for overtime. They quickly learn that beyond a point (typically about 10 hours or so), additional overtime gets eaten by taxes to the point it’s not worthwhile.
Another group that has a great deal of control over their income are business owners. Tax them too much and they may decide that working 60+ hours a week isn’t worth it any more. As an example, about 10 years ago, my wife worked for a couple dental surgeons. One in particular was very good at his work and made a good income. However, beyond a point, he didn’t bother to take on more cases because of the taxes. He actually took several months off each year. His taxes were high enough that it just wasn’t worth it to him to try to make more money because he got to keep so little of it.
Well, of course those in the top income segment pay more taxes even with lower rates, when their income goes from 7% of the total to 23% of the total. It’s not the magic of voodoo economics. With a redistribution of wealth, there’s a redistribution of income tax liability.
Chris and James: Stop thinking like government employees.
For starters, you’re imagining things like they were a one-time event in an economics textbook. Yeah, the magic textbook fairy waved her wand and poof the environment changed; but, you’re only analyzing the immediate effects, and in a vacuum, at that.
Think beyond the immediate impact. Yes, my personal fixed salary would most likely remain unchanged, as would similar fixed salaries of many workers. However, in the aggregate, there would be movement, as some employees chose early retirement, or quit to raise their children, or didn’t put the effort into earning that big bonus or promotion, as a result of the higher expected marginal tax rate. Likewise, countless small businesses will never be formed, or will grow far more slowly than they would have, because of the higher tax rate.
Adam Smith wields an invisible hand, not a mailed fist, so these effects don’t have to be obvious at the first instance, as you seem to be demanding they be. But, over time, the numbers do add up, and they do demonstrate, time and time again, that as tax rates decrease, especially when they have been at purely punitive levels, tax revenue tends to increase.
Gee, maybe Laffer was kinda right…
You’re almost there. “Taxes” is a meaningless word in this context. There are two related concepts, “tax rate” and “tax revenue.” Rates can go down while revenue goes up. This is because most of our taxes are on business activity (salaries, capital gains, sales, inventory, etc.). Taxes remove the medium of exchange which is necessary for modern business activity. Higher tax rates suppress business activity which in turn lowers tax revenue. It’s all a question of exactly how much.
The end points of the graph (of “tax rates” vs. “tax revenues”) are easily established. If all tax rates dropped to zero tomorrow, there’d be a tremendous boom in business, so much that inflation would be a problem (same supply of goods and services, radically increased demand, therefore higher prices). But of course it wouldn’t do government any good, since zero tax rates would generate zero tax revenues no matter how much business activity we have. Conversely, if tax rates increased to 100%, business activity everywhere would stop, since it would be impossible to make any money, and business without money is just a dead skunk in the middle of the road. With no business activity, government tax revenue would be zero, even with a 100% tax rate.
So, tax rates which are too low are lousy for tax revenues. Tax rates which are too high are also lousy for tax revenues. Some people have trouble grasping this, and if they persist in confusing “tax rates” and “tax revenue” by calling them both “taxes,” it’s easy to see why.
Now, if the US eliminated income tax, both corporate and personal, the government would no longer have an excuse to keep track of all corporations and citizens. Where we work, who we hire, where we keep our money – no need to keep tabs on any of that stuff. It would be a major blow to the Big Brother state. That right there should be a good enough reason to go ahead with it, and all the motivation the government needs to be opposed to it, no matter what it does for revenues.
General thoughts from the comment thread:
1) How much overtime it takes to be “not worth it” varies wildly depending on the hourly rate of the employee. Folks in low-wage positions frequently take all the overtime they can stand, because it doesn’t materially affect their taxes.
2) Larry J – in your example, all those patients not seen by your dental surgeon were seen by somebody. The total amount of revenue taken in for dental procedures (and taxes paid on them) stayed the same.
In general, saying “billing professionals will work less hours” is easier said than done. Having been an hourly consultant, the more significant factor on my income was customer demand.
3) Saying that people are disincentivized to work hard because of taxes is just stupid. Changing the tax rate from 36% to 39% means paying an additional $300 per $10,000 of income over the switch-point to the higher rate. So one would work hard for $6,400 but not for $6,100?
4) Various commentors assume that lower tax rates automatically stimulate the economy. Tax rates have not changed since 2003. Please explain why we had a decade of slow growth followed by a disasterous recession? While you are at it, please explain why these same higher tax rates didn’t stop growth in the 1990s.
Speaking of the Bush tax cuts, for years the Democrats have denounced them as tax cuts for the wealthy. Now with an election looming they’re nervous about the tax hike middle income earners are facing when the Bush “tax cuts for the wealthy” expire. Don’t hold your breath waiting for the media to ask them about it.
Point regarding property taxes:
In the UK, we call taxes on residential property “council tax” and tax on business property “rates”. Why, I have no idea.
It is notable that business owners pay a grossly disproportionate amount of property tax. I own a house and a retail shop, of comparable value and both heavily mortgaged – I am by no means rich; in fact I am struggling to survive (thanks to those wonderful American bankers, but that belongs to another thread!). And the business property attracts ten times the tax that the residential one does.
I actually get less service at the business property. For one thing, rubbish collection is not included in the business rates. So why is the tax so much higher? My answer – because businesses don’t have votes and individuals do. Or in the immortal phrase, why does the council charge businesses more? BECAUSE THEY CAN.
I further submit that if individual voters actually paid their fair share of local tax in Britain then we would have had a violent revolution, with local government apparatchiks hanging from lamp posts, many years ago despite British apathy.
Is the situation similar in the USA?
By the way, my town has a population of approximately 150,000. I would dearly love someone to tell me why my town’s head of council services (an appointed post) is paid comfortably more than the Prime Minister.
While the number of tax brackets and associated percentages are unchanged since 2003, several other meaningful components of how taxes are calculated have changed: Congress modifies the tax tables, credits, and deductions every summer.
The “Bush Tax Cuts” did not change the amount I paid over the last 8 years in the slightest. I pay Alternative Minimum Tax which was not changed at all.
Chris Gerrib Says:
1) …Folks in low-wage positions frequently take all the overtime they can stand…
Which doesn’t matter because they pay 1% of tax revenue. The only people that matter for tax revenue are the top 20% earners or so. They have a much larger degree of control over their personal income / free time trade.
2) …total amount of revenue taken in for dental procedures (and taxes paid on them) stayed the same.
No – because procedures were moved from the most efficient, competent dentists to the less efficient, competent dentists. The less efficient dentists make less income, and so are in a lower tax bracket. Government is worse off, economy is worse off, and clients are worse off.
…the more significant factor on my income was customer demand.
So you never changed your time investment strategy to minimize taxes? That is very strange. Most high income people I know pay a significant portion of their income to a professional whose only job is to decrease their tax liability. I know I spend a lot of time working on that personally as well. Both are a dead loss to society, and the rational amount to spend on tax minimization is proportional (or super-proportional) to the tax rate.
3) … Changing the tax rate from 36% to 39% means paying an additional $300 per $10,000 of income over the switch-point to the higher rate.
Don’t be stupid – I currently pay over half my income to taxes. So if I only get to keep 40% of my income, a 3% increase in tax rate is a 9% decrease in after-tax income. And I am currently funding 2 startups – a 9% decrease in income will close one of them, puting those people out of work.
4) …Please explain why we had a decade of slow growth followed by a disasterous recession?
Perhaps because there is not only one method for the government to destroy the economy…
What bothers me the most is Chris’ willingness to have the gov’t take other peoples money.
First, they came for the millionaires….
David – you assume that the highest-income dentist is the most efficient. That may be true – or he may have higher-income clients due to better marketing. When I was a consultant, I was focused on revenue maximizing, largely because IT consulting was either feast or famine in nature. But yes, I still had 401ks. My point was that the limiting factor on my income was client demand, not the tax code.
When I pencilled out your “9% decrease” I still got only 3%. Not sure how you calculate that 9%.
Lastly, I note that what you didn’t explain is how a 3% tax bump didn’t kill the 90s boom.
Chris,
The 90s tax increase that Clinton effected was during an economic upswing after a very mild recession. A tax-rate increase now would be during a very precarious recovery (many people still fear a double-dip scenario) after a very steep recession. Note also that it would be anti-stimulus at a time when most economists are arguing for more stimulus of one type or another (fiscal or monetary).
A tax-rate increase now would not be wise, IMHO.
Chris,
Two further notes:
1) Clinton raised taxes in his first term while cutting spending. He lowered the federal government’s share of GDP as compared to Bush (largely with defense-spending cuts, but that’s a different question). That would obviously not be the case if Obama were to raise taxes now.
2) Clinton’s “boomiest” years were in his second term, and they coincided with the GOP Congress and the large, fiscally stimulative tax cuts (particularly w/r/t capital gains – and I’m sure you’ll note how increased capital gains tax revenue from the subsequent stock boom/bubble fueled the balancing of the budget that Clinton achieved during his second term).
Larry J – in your example, all those patients not seen by your dental surgeon were seen by somebody. The total amount of revenue taken in for dental procedures (and taxes paid on them) stayed the same.
In general, saying “billing professionals will work less hours” is easier said than done. Having been an hourly consultant, the more significant factor on my income was customer demand.
Due to the nature of the “progressive tax system” (which is a crock like other things labeled as progressive), as his income increased past different thresholds, the percentage taken out of additional income also increased. Once he made the amount of money he wanted, earning more just pushed him into a higher tax bracket so his effective hourly income decreased. Beyond a certain point, he no longer felt it was worth it. Now, those patients went to other oral surgeons. However, if their income was less than his, then they weren’t in the higher tax bracket so the amount of revenue raised was less.
The “progressive tax system” is based on economic penis envy. Why should money earned at different income values be taxed at different rates? The sole legtimate function of the tax code should be to raise the necessary revenue to fund the Constitutionally authorized functions of government. Social engineering, political payoffs, and class envy are not legitimate purposes of the tax code.
The progressive tax system recognizes a simple and irrefutable fact: at lower income levels, a higher percentage of income goes to basic needs such as food. The same percentage of taxes hurts the poor more than the rich.
A family of 4 living on $50,000 is spending a much higher percentage of their income on basic necessities than a single person making $100,000.
Really? I thought the progressive tax system was intended to do things like redistribute wealth?
Why are people who make more money penalized by the US via higher taxes? If progressive taxation is the way to go, why aren’t fuel taxes and telecommunication taxes progressive? Why aren’t Social Security and Medicare taxes progressive?
“From each according to his abilities, to each according to his needs.” Karl Marx
Big D hit the nail on the head…progressive tax systems are simply a method for the state to pick winners and losers. Marxism.
Obama said quite plainly (before the 2008 election) that he didn’t care if revenues dropped, as long as it was “fairer.”
Government can only make everyone poorer – it cannot increase wealth.
I’m with the Democrats on this one. Why just the other day, one of my employees suggested that we increase sales revenue by lowering our prices. Increase sales by lowering prices? That’s crazy talk! Next thing you know, someone will say the government could increase tax revenues by lowering tax rates. Nuts, all of them.
“When I pencilled out your “9% decrease” I still got only 3%. Not sure how you calculate that.” It’s really 7.5%. See it’s like this.
You make 10K; the government keeps 6K. Then they take 3C (hundred) more.
1) You were taking home $4000.
2) The government increase your taxes by $300
3) Now you’re taking home 3700.
300 is 7.5% of 4000.
As I see it, the key problem with taxes, especially of the progressive sort, is that they move wealth from the people who have demonstrated that they could use that money to make more wealth, not just for themselves, but everyone else. The money gets moved either to people who have demonstrated they can’t make wealth or who make wealth through the political process. That’s an inherently very inefficient process that loses future wealth.
“But of course! Why hasn’t the IRS thought of that?”
SHUT UP SHUT UP SHUT UP SHUT UP RAND.
Seriously though, I’m sure they have thought of this. Let’s stop the IRS from thinking too much more. It’s bad enough that they can’t even pay their own bills. I don’t need them making it any worse than they already have.
At some point increased government debt is going to hurt the economy more than an increased tax take would (there is no free lunch). I suspect that point is getting close. Reducing expenditure would be an alternative, but I do not see that happening so increasing the tax take is going to be the best thing for the economy. 🙂
In order to stimulate the economy in a manner that does not just steal from the future one has to add economic efficiency. Has any stimulus to date increased economic efficiency? (increased productivity?) If not a stimulus package is just, for better and worse, redistribution welfare which someone else has to pay for.
I have been wondering a little about a value added tax – it is actually a fairly flat tax so in some ways would be better for the economy, it would help offset the progressive income tax. It also taxes expenditure not investment, and so would encourage investment, which aids the economy, and discourage expenditure/consumption, which in spite of what various “experts” might say seriously hurts the economy (by adding inefficiency and frivolously wasting wealth – lowering productivity).
If Pete thinks VAT – Value Added Tax – is flat he has a real problem. Yes, the rate is applied equally but the tax is applied to ALL goods and services. Once again the lower income groups will pay a disproportionate amout of tax. We all use about the same amount of basic service – groceries, power, gas etc. It’s not totally independent of income but it is not a “flat tax” and the rate is easily adjusted – as in the UK – from 17.5% to 20% at the moment on most things. There are exemptions but again that can easily be changed. This is ON TOP OF INCOME TAX and local tax demands. In the US we bitch heartily when Sales Tax goes up a point. What would happen if we had VAT? We would have Income Tax, VAT, Property Taxes, State Sales Tax etc ad infinitum. I do NOT think that instituting a VAT system would reduce the Income Tax rate or replace it – it would just be another way for the bureaucracy to grab more money from us sheeple!.
A historical note, with maybe a memory fault for exact years!
In the UK VAT was introduced in 1970 or ’71 to replace the old Purchase Tax which was at a rate of about 8% if memory serves correctly. The initial rate of VAT was 10% with exemptions for things like basic foodstuffs and children’s clothing etc. Some other things were also taxed but the rate was 0%; i.e. a loophole to raise a lot more money quickly with just a rate change.
With the VAT rate at 20% today; guess what happened? Right, rates went up, they started to rise about the time I left the UK.
There is a hidden cost to VAT as well; each trader has to collect the tax and remit it to the government after deducting what he paid in VAT when he bought the items he sells. except for stuff he uses personally – on which he pays VAT! The accounting nightmare has been transferred to the trader and there is a direct cost associated with the process of tracking VAT.
Chris seems to be confused on where wealth comes from.
individuals create wealth-period. All taxes are an attempt by government to regulate wealth.All Governments consume wealth-period. Goverments cannot give anything but that they take it from someone first.
IT”S YOUR MONEY. Congress does not sit in session to determine how much of YOUR income it is going to take. Congress sits in session to determine how much of YOUR money they are going to let YOU keep.
I get tired of explaining this to people who think tax cuts are a scam.
If I am allowed to keep more of my own income I will dispose of it in ways I think are beneficial to me. By spending or investing that income I generate more taxes.
it’s not rocket science.
How about we go with a flat tax of ten percent, everyone files an individual return, and the only deduction allowed is a poverty level exemption. You pay ten percent of whatever is left over.
If the poverty level exemption is 20K and you make 30K, you pay a tax of 1K. If someone makes 200K then they pay a tax of 18K. That seems fair enough and drop dead simple. Oh, and eliminate withholding from paychecks and move the filing date to October 31 so that it is as close as possible to an election day.
Make Congress stack rank their priorities for spending, and when the money runs out then nothing below the line is funded.
Then we retrain all the IRS folks to start auditing businesses and individuals for Medicare fraud.
Jimator, I strongly agree with what you’re saying. A flat tax like you suggest would be fair, efficient, and honest. It would eliminate the several hundred billion dollars a year in compliance costs and essentially do away with the need for the IRS. And that’s why I doubt it has a snowball’s chance in Haiti of ever being enacted. The current tax system is massively complicated, horribly inefficient, and largely the result of congressional corruption. The “ruling class” likes things the way they are. All they have to do is suggest they’re going to revamp the tax code and the campaign contributions (bribes by another name) come rolling in.
When oh-so-smart folks mock the idea of cutting rates to increase revenue, I ask them to imagine a tax rate of 100%. According to them, this must produce the most possible revenue.
Everyone turns over to the government all their fruits of their labors, and are given back whatever our masters choose. We’ll all keep working just as hard as we do now, right? Right, Chait? Or perhaps non-government workers will do only enough to get fed. Or avoid being shot.
Now assume the tax rate is cut back to a mere 90%. We get to keep some of what we produce. Is it possible as that enormously taxed peons will be 11% more productive than as outright slaves?
Then cutting tax rates can increase revenue. Now it’s just a matter of finding the sweet spot.
wormme – let’s not get stuck on stupid. A 100% tax rate doesn’t work, because everybody finds a way to dodge the tax. But 39% on income over $250,000 is nowhere near 100%. Anybody making less than $250K could care less, and even people making $300K are only paying the top rate on the last $50K.
Or more technically, what’s the inflection point for the Laffer Curve? At what point do higher tax rates reduce revenue? What limited historical information I’ve seen suggests that inflection point is around 50%.
39 is not 50.
If Pete thinks VAT – Value Added Tax – is flat he has a real problem.
You may note that I said “fairly” flat tax. You may also note that I referred to it as a tax on expenditure, a context in which it is pretty much a flat tax. The difference between income and expenditure is investment, there is a strong argument that only expenditure should be taxed (not the transaction of investing). You also seem to be miss informed as to compliance costs – generally businesses tend to *like* VAT, sales tax and the like, as the compliance costs tend to be lower than for other taxes, although it is important not to make it messy by adding exemptions.
39 + 6.2 + 6.2 = 51.4 Ignoring a pile of other candidates. Just noting that if you’re in the 39% tax bracket, you’re paying money into social security that you will not get back even living to 110. So it is indeed a “tax” not a “safety net” for people in this bracket.