It appears daily we must read one politician or another, or worse, one “journalist” or another opine on subjects ranging from immigration to drug
legalization, constitutional issues to global warming, even capitalism to socialism (or communism/fascism etc.). Most often these are arguments that
lack facts, are subjective, and leave even the most intelligent of us fighting in brief blurbs on twitter or in comments sections over semantics or
snippets of quotes. No real conversations are had, and many of us cannot even come to an agreement on basic truths.
Hence this series; here I will attempt to spell out an admittedly biased point of view, using unbiased data and references. I hope it will allow us to
move past basic sticking points in arguments and allow for more fulfilling debate as we head into yet another election cycle. I hope to see a healthy
conversation, and I look forward to further debate on many of the coming topics.
Marginal Tax Rates
It has been slightly amusing to me to hear some newly anointed politicians talk about marginal tax rates in the same way that a
grade school teacher patiently explains primary colors to a 4th
. I think that many people are aware of what marginal tax rates are, however, I think it important to spell out exactly what they mean in
a numerical sense. Some politicians have called for a
, and some have even
called for a 90% rate
on people making over $10m
annually. It is important to realize that we have had both of these rates in the past, and the 70% rate was in effect as recently as 1981, although
the $10m figure seems to be an arbitrary one. As you will see, the numbers do not jump randomly from X% to 70% or higher, they incrementally move up
with income, ending at the highest rate and staying there. I also admit that I have not considered donations, tax breaks, and other random tax laws,
as this is not the point of the exercise. I do not believe that those who are advocating for these rates are doing so in hopes that the individuals
who meet these thresholds will find ways of avoiding the taxes- quite the contrary, I think they believe too many people are not paying their “fair
share” as it is.
Let’s look at this, using both rates up to 70%, and 90%, for married filing jointly. I will be using
inflation adjusted to 2013. (as a last note, although politicians have called for the highest marginal rate to be at $10m annual, I am using the
latest applied 70% marginal rate as the template, setting the cap to jump to $10m, which I know it would not do) There are multiple sources for
this data set
, I just chose the
easiest to read on my phone. To the right will be the final tax bill, with the total wages leftover after, with the final wage being $100m for the
sake of math. Lastly, I added in the $30m salary that Manny Machado recently signed for in sunny San Diego.
So what have we come up with? Well, we know that the current marginal tax rates set the top rate at almost
at $440,000. However, it is inevitable that there will be a
graduated scale similar to the one above, as historically that has been the case when the federal government wants to increase taxes- both the
graduation and the amounts. In the above example, we see that at both the 70 and 90% tiers the effective tax rate for the entire sum is almost 70 and
90, respectively. As a matter of fact, the difference is negligible- so the next time someone tells you that you don’t understand marginal tax
rates, tell them they don’t understand math. Also note that the tax rates rise for nearly everyone, and especially hit hard the “middle class”,
where they and the upper middle class have now moved to the top of the current tax pyramid. Currently,
the average taxpayer makes $74,664, and pays
$10,489 in state and local taxes
- as you will se below, the average taxpayer will now pay $16,900 in combined taxes, an increase of roughly
But why would the federal government raise tax rates on everyone? And wouldn’t the argument be that this scale is fair, as the effective tax rate
(the far right column) is the real tax rate?
I’m so glad you asked, invisible person! First, personal income
taxes have been the primary means by which the federal government has raised money since their inception.
There are many arguments for why this
is, but I will stick to one train of thought. Corporations are not human beings, but they are not machines, either. They are organizations whose sole
purpose is to gain and maintain capital for its shareholders. Corporations, in fact, have a fiduciary responsibility to make as much money as
possible-something even left leaning democrats and their
supporters need to happen
. Because of this unavoidable fact, corporations are likely to pass any taxes off to the consumer, seek tax breaks or
incentives, move to countries that offer tax shelters, or commit to low risk investments.
Why doesn’t the individual just invest their money- it helps the economy and limits their tax exposure? First, lets point out that as we just
acknowledged with corporations, there are limited ways to invest in such a horrible tax environment, as most companies will be limiting their exposure
in both losses and profits- the returns would be extremely low, and most likely not be the types of investments that people claim will create jobs.
Secondly, why can’t a person choose to spend their money on leisure items? The person building expensive watches, cars and homes tends to be a
master at their craft and makes more than the person who is just starting out, so if that person were able to keep more of their money, they would
spend it and help more people- this is really a punishment against those we envy. But I digress, so lastly, why would someone choose to invest in
anything other than the safest of treasury bonds? If you had, for instance, $100, and you knew that as a profit that money would be taken from you at
a 70% rate- would you rather invest in a low yield bond that gave you pennies, or risk losing all $100 on a high risk restaurant (as an example),
knowing that even if you were successful, you would have to give up 70-90%, and if you were a failure you lost 100%?
edit on 22/2/1919 by ThouArtGod because: Adding table
edit on 22/2/1919 by ThouArtGod because: Syntax error