Truth Behind Politics

If you want to see the chart for yourself go here http://www.heritage.org/research/features/BudgetChartBook/-Progressive-Taxes-Interactive-Chart.aspx .

Many of you have seen this before but I just wanted to make sure you had a good reference for when your friends challenge you for your source.

Summary:

• Top 1% of income earners in the country pay 40% of income taxes (defined as making above ~$390,000/yr or more)
• Top 10% of income earners pay 71% of all income taxes (defined as making above $108,000/yr or more)
• Bottom 50% of income earners pay 3% of all income taxes (defined as making between $0-$32,000/yr)

It seems to maybe be arguable that certain of the lowest earners in society should not take on a high tax burden while trying to provide a basic level of living to their family. However, it does not seem reasonable that people get enraged when there are tax-rate cuts.  They all claim “you are just giving the rich a tax cut!”.

Well yes, if only the “rich” pay most of the taxes, as we see above, then I’m pretty sure that the rich would likely benfit directly fromt he tax cut. However, if the tax cut is what is best for society as a whole then should we really not enact the cut merely because we believe it is a “tax cut for the rich”?

There are two issues here:

1. Does a tax cut or a tax increase have the greatest increase in actual tax revenues (or tax receipts)?
2. Does a tax cut or a tax increase spur productivity, efficiency, job creation and therefore a flourishing society and economy?

Answers:

1. Historically it has been shown that lower tax rates (or a tax rate decrease from current levels) tend to result in higher tax receipts within a couple years. Conversely it has also been shown that higher tax rates result in lower tax receipts for the government.
2. The larger a tax cut, or the lower a tax rate is, the higher productivity we see. This is for several reasons:  because workers then realize they are keeping more of each paycheck and therefore feel a higher value in their work. They bring home a larger paycheck and therefore get to make more choices about what to do with each additional dollar that otherwise would have gone directly to taxes.  Since they feel they are getting a better value for each additional dollar they earn, they seek to earn even more by working harder, working smarter, bettering their education etc.
3. Also with this extra money the individual keeps, he chooses to buy items or pay for services, which in turn are made or provided by people and then those people make more money and their tax rate has been lowered. They are making more money because of a robust economy AND they pay a lower tax rate on each dollar they earn.
4. This cycle continues over and over millions of times with the freed up cash that is not being forcibly taken by the government and rather is spent (or saved) in the way each individual person sees fit. Funny isn’t it…this crazy thing called freedom and property rights! Hmmmm.

This entry was posted on Thursday, July 30th, 2009 at 12:59 pm and is filed under Taxes. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.