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I heard a radio talk show the other day and the commentator mentioned how the economy was stronger when we had a much higher top marginal tax rate. While I don't particularly trust anyone on the radio, it did get me thinking so I googled around and found the GDP for the years 1947-2003 and the Top Marginal Tax Rate for those same years and the unemployment rates. Throwing the data into excel, I averaged the numbers out around the major changes in the max marginal tax rate.

I found a fairly strong (though certainly not perfect) correlation between higher marginal tax rates and lower unemployment and higher GDP growth.


Time period Avg Max tax Avg Unemployment Rate Avg GDP growth
1947-1950 83% 5.00% 5.13%
1951-1963 91% 4.86% 6.33%
1964-1981 71% 5.62% 9.46%
1981-1986 50% 8.20% 7.55%
1987-1992 31% 6.15% 5.94%
1993-2003 39% 5.28% 5.10%


This seems counter-intuitive since the usual story is increases in the tax rate are a disincentive for folks to try to earn more money, and hence lead to reduced investment, reduced employment, etc.

But really we are only talking about the top mariginal tax rate. So is a higher top tax rate for the richest really a disincentive to invest? Then why does employment increase with higher tax rates?

As I thought about it more, it made more sense to me. If I own or run a business, I have a choice of taking the profits out of a business as income or reinvesting it in the business to grow it further. If the marginal tax rate is high, there is an incentive not to take the income and therefore an incentive to grow the business: to hire more people, to buy more equipment, etc.



Top US Marginal Income Tax Rates
http://www.truthandpolitics.org/top-rates.php

Unemployment Rates
http://www.bls.gov/cps/prev_yrs.htm

GDP Growth Rates derived from:
http://www.data360.org/dsg.aspx?Data_Set_Group_Id=230
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This would make more sense if it was inflation adjusted. It would make even more sense if the various tax loopholes which the wealthy (those making more than $100K per year back then were the equvalent to those making well over a $1M a year today) we allowed to make use of (oil depletion allowance is one that rings a familiar note).

It is also fair to assume that in the post WWII era, we had few industrial competitors and our economy benefited accordingly.

Simply taking the highest marginal tax rate (which few, if any paid back then) and assuming that this was the reason for a booming economy is disengenuous.

With the risk of Tim saying this is a tax whine :-), there is unlikely to be a correlation between high taxes and a booming economy.

Jeff
(Some may remember the Alamo, but the AMT comes to mind, as well as its reason d'etre)
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Simply taking the highest marginal tax rate (which few, if any paid back then) and assuming that this was the reason for a booming economy is disengenuous.

I never claimed that this was the reason for a stronger economy, only that there was a strong correlation. and there is a common sense explanation why a higher marginal tax rate at the top would induce those folks to invest more over taking income.

Folks love to use the "common sense" explanation that the opposite of this is true, but the numbers don't show that either.

With the risk of Tim saying this is a tax whine :-), there is unlikely to be a correlation between high taxes and a booming economy.

Perhaps not overall higher taxes, but there is a correlation between the top tax rate and the a growing economy. Not necessarily causal, but definitely a correlation.
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Any historical comparison of marginal tax rates is meaningless because they do not take into account tax laws (such as deductions) at the time. Real tax rates (the rates people pay after all exemptions and deductions are taken into account) would be a much better number for comparison.

For example, even though under Reagan the marginal tax rates were drastically cut, lots and lots of deductions (or tax shelters) were gutted as well. As a result, real tax rates dropped, but not as drastic as the marginal rates were cut. If fact as a kid I still remember my uncle, who owned his own business, cursing Reagan because the amount my uncle owed in taxes actually increased due to all of the gutted tax shelters.
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I just took a quick peek at 1947. The top tax tier was at merely $200K (after deductions, which were numerous) at 86.5%.

According to Shadowstats, the Bureau of Labor Statistics, CPI-U (Urban Workers, All Items) inflation rate since then was 9,497% (their normally much higher figure was hidden as it was subcription priced). That means that $100 back then, according to Uncle Sam today would be worth $949.73 today.

So that $200K income back then would be the equivalent of an adjusted (after deductions) income of $1,900,000 using the government's statistics and substantially higher using Shadowstat's.

Take that and apply the very broad loopholes that were available then and you'll se that very few people were in an income bracket to be affected by the higher tax rates.

You can plug in various years and get government based CPI results to your heart's delight here:
http://www.shadowstats.com/inflation_calculator?amount1=100&...

Year by year deviation between CPI and Shadowstats can be seen here:
http://www.shadowstats.com/alternate_data/inflation-charts

Top tax rates can be calculated here:
http://top-federal-tax-rates.findthebest.com/directory/d/194...

But without knowing the tax rules regarding deductions for each year (especially before the AMT kicked in), all you can tell is that the chart can be grossly misleading if seen through the filter of 2010 wage rates.

Not meaning to be disrespectful, as the point you make is apparently valid, but in context, it is also very misleading.

Jeff
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I just took a quick peek at 1947. The top tax tier was at merely $200K (after deductions, which were numerous) at 86.5%.

According to Shadowstats, the Bureau of Labor Statistics, CPI-U (Urban Workers, All Items) inflation rate since then was 9,497% (their normally much higher figure was hidden as it was subcription priced). That means that $100 back then, according to Uncle Sam today would be worth $949.73 today.

So that $200K income back then would be the equivalent of an adjusted (after deductions) income of $1,900,000 using the government's statistics and substantially higher using Shadowstat's.

Take that and apply the very broad loopholes that were available then and you'll se that very few people were in an income bracket to be affected by the higher tax rates.



So I take it you are in favor of 90% top tax rate so long as that starts at income of $2 million? Works for me as a start.
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So I take it you are in favor of 90% top tax rate so long as that starts at income of $2 million? Works for me as a start.

So if I own a small business with 20 employees and would normally earn $4 million in a year, I may as well close up shop and vacation in Florida for the first half of the year. Most of the income is coming from the last quarter of the year anyway. All my employees can collect unemployment benefits until I get back and re-open the business.

When I was in high school working in a grocery store, we actually had a grocery store owner do something similar to that. Our union was trying unionize the workers in another store and the store owner was fighting a losing battle. So he closed down the store, fired everyone, and headed South for the winter and then hired all new employees when he got back in the spring and re-opened the store. Think those new employees wanted to talk to the union?
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So if I own a small business with 20 employees and would normally earn $4 million in a year, I may as well close up shop and vacation in Florida for the first half of the year.
If I did this I would lose all my clients. It's an insane plan for most businesses.
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So is a higher top tax rate for the richest really a disincentive to invest?

It's a myth that they do anyway. People in the top tax rate want their money safe, and if they invest it'll be a comparatively minor portion. Otherwise the last 10 years would have see massive employment increases.

The best engine of growth is when people can turn their own labour into capital, rather than when capital provides labour.
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If I [shut down my business for half the year] I would lose all my clients. It's an insane plan for most businesses.

There are a number of small businesses that are only open during that last quarter of the year. I remember most of the empty slots and kiosk spots in the mall would start filling up around October and November, only to be empty again in January.

But you're right -- it would depend strongly on the type of business.

Would you have much motivation to keep as many clients though, if you were only able to keep 10 cents on the dollar for additional clients you took on? Once of the reasons I only worked part-time (20 hours per week) from 1993-2006 is that beyond that level I only saw an additional 44 cents of net pay for each additional dollar of gross pay (I maximized things like the 401K). I'd rather use the 20 hours to pursue my own interests.
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I never claimed that this was the reason for a stronger economy, only that there was a strong correlation. and there is a common sense explanation why a higher marginal tax rate at the top would induce those folks to invest more over taking income.

But your common-sense explanation ignores corporate income taxes, and assumes money the wealthy don't take as taxable income will remain available for businesses to invest.

It also ignores the little problem that when the top tax rate was over 90%, President Kennedy's advisors looked around and informed him that nobody was paying it.
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But you're right -- it would depend strongly on the type of business.

Would you have much motivation to keep as many clients though, if you were only able to keep 10 cents on the dollar for additional clients you took on? Once of the reasons I only worked part-time (20 hours per week) from 1993-2006 is that beyond that level I only saw an additional 44 cents of net pay for each additional dollar of gross pay (I maximized things like the 401K). I'd rather use the 20 hours to pursue my own interests.



I was going to comment on the importance of properly picking the business type, and whether it's more profitable to emphasize capital gains vs personal income.. but I don't think there's a point. The sentiment in Discurro's comment seems to be that a 90% tax on any income over $2 million would be great, regardless of the income type.

I'm in favor of (slightly) higher marginal tax rates, but I think it's important that there be some sort of tax shelter for exceptional businesses and their owners. While 20% is obviously too low a marginal tax rate, 90% is too high.

~w
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A coupla years ago (after the 2003 tax cuts), I noted that a hedgie had "broken through" the $1 BILLION compensation ceiling. Last year, some 25 hedgies brought home that much. Their tax "burden"? 15 percent - 'cuz in hedgie world it's considered "carried interest" not "ordinary income".

I'm not in favor of confiscatory taxation. By the same token, I'm not all that fond of amazing tax breaks for the wealthiest of the wealthy.
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Would you have much motivation to keep as many clients though, if you were only able to keep 10 cents on the dollar for additional clients you took on?
Yes. But in any case, no one is proposing a 90% tax rate over $250K.

I've been over the $250K cap, and an incremental increase in tax rate over $250K as is proposed wouldn't have changed my business planning at all. For me, there are other factors that are more critical.

I'd rather use the 20 hours to pursue my own interests.
That is absolutely your choice. I'm glad your work was so successful that you had the option to do so.
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"I'm glad your work was so successful that you had the option to do so."

Another true story:

Coupla decades ago, I spent the morning at the home of Brett Weston (son of Edward Weston) internationally acclaimed photographer. It was September. His home was absolutely gorgeous (as are his photographs). In the course of conversation, he stated that he routinely cuts off all photograph sales when he reaches $1 Million in profits. I asked him if he had reached his cut-off? "Yes. In February".
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It also ignores the little problem that when the top tax rate was over 90%, President Kennedy's advisors looked around and informed him that nobody was paying it.

Ah!

Economics!

There is a point where people will cease to pay taxes. Further I suspect that the point can be extended a great deal by increasing the taxing authority and the methods.

I don't know what the limits are, but I strongly suspect that not only do they exist, many advisers to our politico's do know. Further, if something can be not a tax, but called something else, it can even further extend the limit, finally the limit can be further extended by completely changing the tax from a tax to a payment.

For example, if you go to a National Park, you pay a fee to get in. There is a nice park ranger there. An employee of the Federal Government, this is a fee, collected by the Federal Government. Now some of the cost of the National Parks is paid by these fees and some is collected from the general tax payer. It is prudent, (and in my opinion, fair to demand a fee for use.) When you enter the park, and decide to spend the night, there is a rental charge for a camping space or cabin. This is paid to a concessionaire. Now the money either flows from the tax payer through the park service to the concessionaire and subsidizes the camping spaces and/or cabins, or the money flows from the concessionaire to the park service. Either way, the money paid to the concessionaire could have been paid directly to the park service if the park service had run the park versus the concessionaire. I know the whole, private industry does it better than the government thing is screaming through your head. Well, I don't disagree, and I am confident that the private concessionaires do a dollar for dollar good job, better than a non=competitive and encumbered bureaucracy. But, the system also gives the government another way to collect money without calling it taxes or fees. For that matter the whole collection mechanism is completely obscured.

All taxes shape the society that they are imposed upon. The politicians generally understand this. One of Reagan's ideals was to free capital from pointless tax shelters and move it into productive work. The graduated income tax structure along with the inheritance tax had the same objective.

On the other hand I cannot but help remembering the late 1970's in Houston, the movie, The Urban Cowboy helped capture what was happening then. There was a great deal of money being handed out to the working class men. Generally most of it ended up going down the toilet at Gilley's or a bar like it.

The pooling of capital into unproductive areas, whether it be Gold Plated condo's in New York, MacMansions in Miami, or beer in Beaumont, is still harmful the MACRO economy. I believe that there is no tax code that can be implemented that people will not adapt to. That is just a function of how people behave and ultimately, economics is all about people behaving in a group.

So, there is an upper limit to taxation, and ALL taxation will eventually lead to mis-allocation of capital. There is also a lower limit to taxation. At some point if taxes are not properly collected, they will be improperly collected. i.e. Bribes, Extortion etc.

Cheers
Qazulight
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It also ignores the little problem that when the top tax rate was over 90%, President Kennedy's advisors looked around and informed him that nobody was paying it.


Perhaps that is because they were investing it rather than taking it as income...
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Interesting...a whole bunch of people keep showing why the numbers I put up must be wrong as they obviously couldn't happen. But no one has given another explanation for why the numbers are what the numbers are. I never claimed a causation, just a plausible explanation. As yet, I have heard no other plausible explanation.
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Interesting...a whole bunch of people keep showing why the numbers I put up must be wrong as they obviously couldn't happen.

I'm not sure they mean anything. Does the top marginal tax rate really have much to do with what high-income earners pay in taxes?

~w
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It would also make more sense if one adjusted for the the post-war boomers and returning servicemen. The population of educated disciplined workers.

I don't doubt there is an effect of the taxation too, but it is unlikely to be as large as some here are expecting, and there is a countervailing consideration... if people in the middle PERCEIVE that the folks at the top are taxed at an even heavier rate, they feel that things are fair enough and they are happier to work hard and voluntarily front up the money they reckon is their share.... instead of engaging in avoidance.

I think there are explanations around this that have nothing to do with tax. The population mix was only one. The technological bump of being the only developed nation that had NOT had its whole infrastructure pummeled by war is another.

The GDP is a poor measure of societal economic health, as it takes little notice of costs to the environment or the society.

Just money transactions, after all.

BJ
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But no one has given another explanation for why the numbers are what the numbers are.


discurro,

Too hard next question? ;-D

Whining about taxes is a time honoured tradition particularly by business people big and small in nations all over the world.

It is usually accompanied by a threat to just give up the business and go fishing or some other lazy time waster and let the country go to hell in a hand basket.

The threat has no teeth because of course this would merely make their competitors happy to expand their share and most "real" business people love their business and would go nuts doing nothing.

The line is BS from the start because as long as everyone (including the competitors) pays the same tax rate and it is not too egregious then competition comes down to who provides the better product at the right price which is as it should be. Fairness is the key to taxes, everyone must be feeling some hurt or there is something wrong.

The main reason for the whining and threats is that of course it works and politicians everywhere having heard this story from every business person they talk to stumble over each other to get a name for being "tax cutters" as opposed to the damning name as a "tax hiker".

The unwashed masses do not have the mantra nor do they have the audience. They cannot compete and therefore end up with an unfair share of the burden or end up living in a nation with increasing debt.

Do I know whereof I speak?
This is from the latest Condo Owners Nova Scotia (CONS) newsletter.

We suspect that by now most of you are aware of the unfair municipal tax burden levied on condominium owners when compared to apartment building owners. In fact the taxes collected from condominium owners in Halifax is 2½ times higher compared to apartment buildings, For example, in a condominium with 76 units, the owners together pay approximately $200,000.00 a year in taxes whereas an apartment building of identical size only pays approximately $85,000.00! The footprint of such a condominium building would probably allow for six individual houses to be built. In the latter case the city would only collect between $15,000.00 to $20,000.00 in taxes and have to provide 6 water lines, 6 sewer lines, etc while in any condominium building, one of each would suffice! In view of this reality, your executive plans to meet with officials from HRM to discuss this discriminatory practice in an attempt to reduce condominium owners’ inequitable tax burden.


**** not signed ****
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I don't think that incentives to invest or the opposite are what causes the slight tendency to see more prosperity with higher taxes for the ultra-wealthy.

When anyone has too much power, they abuse it; that is why the people need to be able to throw the rascals out when it comes to government. When the power of the government is out of proportion to the power of the people, it treats them with disregard or even starts to dispose of them.

The same is true for the power of money. When money is concentrated in the hands of too few people, they do not use it in a way that benefits the most people; they start wasting it, or using it to throw their weight around, or what have you.

The people need to control a nation's wealth for the same reason that they control its police and military.

That does not mean that you don't want anyone to be wealthy, anymore than you want a completely powerless government. But you want enough leverage to keep things reasonable. Progressive tax rates do that, to some degree. You want anyone with a disproportionate share of the power to have to answer to the people.
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When anyone has too much power, they abuse it; that is why the people need to be able to throw the rascals out when it comes to government. When the power of the government is out of proportion to the power of the people, it treats them with disregard or even starts to dispose of them.

The same is true for the power of money. When money is concentrated in the hands of too few people, they do not use it in a way that benefits the most people; they start wasting it, or using it to throw their weight around, or what have you.

The people need to control a nation's wealth for the same reason that they control its police and military.



Interesting....sounds like your theory is that both higher max tax rates and stronger economy and lower unemployment are more tied to the people being actively involved in their government. But it also states that too much wealth concentration in too few also appears to be a drag on the overall economy and definitely on employment. Sounds reasonably plausible to me.

I still suspect at the upper income ranges, they are more likely to reinvest earnings rather than take them as income if they are faced with a higher tax rate, but I don't see how this disagrees with your premise either.
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discuro,

I'm wondering how you came up with the time periods?

I found a fairly strong (though certainly not perfect) correlation between higher marginal tax rates and lower unemployment and higher GDP growth.

Time period Avg Max tax Avg Unemployment Rate Avg GDP growth
1947-1950 83% 5.00% 5.13%
1951-1963 91% 4.86% 6.33%
1964-1981 71% 5.62% 9.46%
1981-1986 50% 8.20% 7.55%
1987-1992 31% 6.15% 5.94%
1993-2003 39% 5.28% 5.10%


Length of chosen periods:

14 years
13 years
18 years
6 years
6 years
11 years

I don't know how this factors into you're thinking, but curious since the links with the actuals went year by year.

Thanks,
Bacchus
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I don't know how this factors into you're thinking, but curious since the links with the actuals went year by year.

Perhaps you missed the line in my original post:
Throwing the data into excel, I averaged the numbers out around the major changes in the max marginal tax rate.



Length of chosen periods:

14 years
13 years
18 years
6 years
6 years
11 years


Actually the first period is only 4 years. Back to the quote from the original post, these periods are when the max top tax rate were relatively stable. When there was a large change in the max tax rate, I created a new period. The driving factor was the tax rate not the period of time.
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So he closed down the store, fired everyone,

Smells fishy to me. Even 50 years ago the chains had begun squeezing out mom&pop groceries. So I doubt any grocer would shut down all winter as you describe. He'd never get the customers back.

Come to think of it, my brother-in-law shut down his business when the workers formed a union. My wife has nothing to do with him. Wonder why.
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Thanks, discurro (and for the correction on the initial period).

Yes, it's interesting that we were able to "tolerate" such high rates for such long periods, especially the two from 1951 to 1981.

Thanks again for your posting.

Best,
Bacchus
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Sorry, I should have responded to this yesterday.

So I take it you are in favor of 90% top tax rate so long as that starts at income of $2 million? Works for me as a start.

So if I own a small business with 20 employees and would normally earn $4 million in a year, I may as well close up shop and vacation in Florida for the first half of the year. Most of the income is coming from the last quarter of the year anyway. All my employees can collect unemployment benefits until I get back and re-open the business.




Actually if you own a small business and are personally taking home $4 million in income (not revenue, but income), then congratulations, but I would recommend you reduce your income to $2 million so you wouldn't be hit with this progressive and oppressive taxation. Then take that extra $2 million that you would have spent on your vacation, and maybe give a small bonus to some of your best workers, maybe buy some additional capital equipment to make your business grow even bigger next year, or hire a few more folks again to help you grow that business even further. I am sure you realize that all of these would be considered legitimate business expenses that would reduce your net income and hence your tax liability.

This was the point of my original supposition. With a higher top tax rate, the folks making a very large INCOME have less incentive to pull assets out of the business as income and more incentive to invest those assets back into their businesses.
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I might bring up thaat many (most?) small/medium sized businesses are "Subchapter S" where profits flow to the stockholders as income. If there are capital expenses, these may be written off over a number of years, but the income tax has to be paid at the present time.

Jeff
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I might bring up thaat many (most?) small/medium sized businesses are "Subchapter S" where profits flow to the stockholders as income. If there are capital expenses, these may be written off over a number of years, but the income tax has to be paid at the present time.

And I might bring up that most of those do not bring in over $2 million per year to an individual owner, and that there are various ways to reinvest that money back into the business so that it is not reported as income. One of the easiest being hiring additional employees which is written off as soon as you pay them.

This may help explain the correlation between lower unemployment and higher top marginal tax rates.
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At the risk of being over simplistic, hiring employees before you have the increase in business to warrant them is a waste of money (businesses are not social welfare agencies). On the other hand, investing in equipment which can increase the productivity of current employees, this can be a far more profitable path. If you are suggesting that it is rational for businesses to take actions which are detrimental to their interests, it will fall of deaf ears. If you are suggesting reducing business taxes on new employees to the point that they become a better tradeoff, it is helpful to remember that those forgiven taxes will have to be made up elsewhere (maybe in increased payroll withholding because of higher income taxes on the working class?).

Without going into gory details, I can categorically state that business decisions are made on the basis of taxes as they relate to net profit.

In discussions with business peers, many small employers are taking home less money than their employees. As recently as this afternoon, I had a very candid discussion with a freind who owns a small business and asked him why he was bothering - he's risking his life's savings, his union employees work far fewer hours and are making more money than he is. His health (and sanity) are beginning to go. My advice was either go non-union and gain back at least some semblance of competitive advantage, or chuck in the towel and work 9-5 for a competitor. The guy is 56 years old and if he keeps this up, he probably won't see the other side of 60. Assuming he could buy a gadget that would increase his profitability, that might make sense. OTOH, what the heck is he going to do with more employees?

Jeff
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"many small employers are taking home less money than their employees"

Well those aren't the ones who have to worry about the high-end marginal tax rates, are they?

They may have an issue with high employment taxes and/or benefits packages needed to be competitively attractive to excellent employees, but not with high income tax margins.

Business will indeed be managed to obtain the lowest (or at least most efficient) tax rates. If tax rates are high for income, but lower for investing in the business (capital expenditures, employment expenses etc.) then they will tend to invest in more buildings, equipment and employees. For the economy, that should be a good thing.


Regards,
Les
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In discussions with business peers, many small employers are taking home less money than their employees.

So they would not be impacted by a high top marginal tax rate. This may be an interesting story but really is irrelevant.
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Perhaps that is because they were investing it rather than taking it as income...

They had to take it as income before they could invest it.

That is, unless they took it as corporate retained earnings, aka taxable income to the corporation.
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That does not mean that you don't want anyone to be wealthy, anymore than you want a completely powerless government. But you want enough leverage to keep things reasonable. Progressive tax rates do that, to some degree. You want anyone with a disproportionate share of the power to have to answer to the people.

Progressive taxes target those who are in the process of becoming rich - not those who are already rich.
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Actually if you own a small business and are personally taking home $4 million in income (not revenue, but income), then congratulations, but I would recommend you reduce your income to $2 million so you wouldn't be hit with this progressive and oppressive taxation. Then take that extra $2 million that you would have spent on your vacation, and maybe give a small bonus to some of your best workers, maybe buy some additional capital equipment to make your business grow even bigger next year, or hire a few more folks again to help you grow that business even further.

Let's see...

He can cause the company to be sufficiently profitable that it could pay him $4 million, and have it actually do so, and pay income tax on the $4 million.

Or he can cause the company to be sufficiently profitable that it could pay him $4 million, have it pay him $2 million and pay income tax on that, give a portion of the other $2 million to the workers (why? They were happy to work for him without it) so they can pay income tax on it, have the corporation retain the balance and pay corporate income tax on it, and the bit that is left he can use to grow the business so he can do the same thing next year with larger numbers.

Or he can cause the company to be sufficiently profitable that it could pay him $2 million, pay the personal income tax on that, and get an extra two days off a week.
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Perhaps that is because they were investing it rather than taking it as income...

They had to take it as income before they could invest it.

That is, unless they took it as corporate retained earnings, aka taxable income to the corporation.



Sorry for the lack of clarity, I meant investing it into the business by doing such things as buying equipment, hiring new employees, etc. I thought that was implied, but perhaps you missed the rest of the thread.

Legitimate business expenses reduce the income of the business.
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Or he can cause the company to be sufficiently profitable that it could pay him $4 million, have it pay him $2 million and pay income tax on that, give a portion of the other $2 million to the workers (why? They were happy to work for him without it) so they can pay income tax on it,

--------------------------------

I guess trickle down was doesn't work.
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Am I the only one that even looked at the statistics you provided? I think that the people that rec'd you must have assumed that your headline paragraph was true without looking to see if the statistics provided backed it up. Well, I did look at your stats, and I don't see any correlation whatsoever. I see a couple of easily explained outliers and then a big pile of unrelated, uncorrelated statistical noise.

For example... Comparing your first time period to the most recent, the average max tax rate dropped from 83% to 39%, but unemployment rose only fractionally (0.28%), and GDP growth was essentially unchanged (0.03%). That's more than TWO TIMES the difference in tax rates with almost NO CHANGE in the other stats!

Comparing the period of '81-'86 with the lowest max tax rate period of '87-'92, the '81-'86 period had a max tax rate of 50%, and the '87-'92 period had a max tax rate of only 31%, the lowest in nearly 100 years. This is not a marginal difference between these 2 rates! If your argument holds any water at all, we should see a BIG difference in the unemployment and GDP stats for these periods, but we do NOT! By your argument, unemployment should have been higher from '87-'92, and growth should have been lower. Growth was lower by about one and a half percent, but unemployment, instead of being higher as you say it should, was lower by almost 2%!

Also, as Jeff pointed out, the period with the highest max tax rate was also a time when we had almost ZERO foreign industrial competition. It was also a time when our nation was highly focused on technological innovation driven by the Cold War and the space race. Both of these were completely unrelated to the tax rates.

-Darth
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Sorry for the lack of clarity, I meant investing it into the business by doing such things as buying equipment, hiring new employees, etc. I thought that was implied, but perhaps you missed the rest of the thread.


Things like that don't happen without an expectation of improved sales. Improved enough to enhance the owner's or manager's position sufficiently to be worth the extra effort.

No reason at present to assume that such an expectation would exist in the general case.

In some specific cases maybe... but then we are already talking about the owner CHOOSING to LOWER his income because of high taxes, so he presumably wouldn't be really thrilled to raise his future income.
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Or he can cause the company to be sufficiently profitable that it could pay him $4 million, have it pay him $2 million and pay income tax on that, give a portion of the other $2 million to the workers (why? They were happy to work for him without it) so they can pay income tax on it,

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I guess trickle down was doesn't work.


Trickle down works just fine. But it doesn't work by handing the existing workers more money than necessary to keep them happy, to do exactly the same work. It works by creating more demand for workers, so that either more workers are actually working or it takes more money to keep the same workers happy; and by creating downward pressure (directly or indirectly) on the price of things workers buy, so that even with the same money the workers are more prosperous.
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