Tuesday, November 15, 2011

Why keep tax rates low?

We know what happens when there are high tax rates for high earners. They pay less.

During the Carter Administration, the tax rates were 70% at the highest level. The top 1% paid only 18% of the income tax. Now when they pay about 30%, the top 1% pays 30% of the income tax.

If you increase the top rate to 100%, they will pay zero. Who would work if they would not gain? Of course productive people, if they work less, produce less, so we are all poorer, with fewer houses, cars, cloths, or electronic devices.

The productive workers are not slaves. We can't whip them to force them to work. We depend on them handing the products of their work over to the government willingly. That happens best at low rates.

Better than a single tax at high rates, is many taxes at low rates. At low rates, it is easier to pay the tax than to change your behavior to avoid the tax. That means willing compliance.

Democrats like high rates, apparently. They can then broker tax exemptions for the very few in return for campaign contributions. GE used tax exemptions last year to pay less than no income tax. The Democrats then use the campaign contributions to tell stupid people how lucky they are that the rich have high tax rates, not that Democratic rich ever pay those rates.

Republicans seem to prefer lower rates. They use the threat of higher tax rates promoted by the Democrats to get campaign contributions from the mass of people who can't manage a special tax exemption.

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