Monday, December 13, 2010

A Case for a Higher Marginal Tax Rate*

I could write this post and discuss why Obama is a dumbass, etc., but rather than parrot what everyone else is saying, let me say this - having a high marginal tax rate (the rate on the highest income earners) is good. Now, I'm sure you're thinking that, since Phat Jim is a liberal/leftie/commie/pinko/socialist, that I support high taxes so as to take from the rich and give to the poor. After all, I'm a tax and spend liberal right?


A high marginal tax rate has the added benefit of redistributing wealth, and paying for social programs, and it makes sense to take money from the wealthiest people who can afford to go with less so that the government can pay its bills. But that's not why I think a high marginal tax rate is good.

What its really about is changing behavior. Specifically, its about getting CEO's and bank executives to look long-term instead of short term. When the marginal tax rate is relatively low (35% right now), high income earners have every incentive to maximize profit now - and before any feared income tax increase. So, rather than putting profits into shoring up the company for downturns, or investing in research, or whatnot, the motivation is to make money NOW.

The end result, as we've seen over and over again, is that more and more money goes to the executives and fewer and fewer money goes elsewhere. Or, worse yet, the company pursues short term profit over long-term gain. Then the company collapses into itself. We have seen this boom/bust cycle move from industry to industry for the past twenty years - twenty years that have coincided with the drop in the marginal tax rate. Not surprisingly, this boom-bust cycle we're seeing now is almost exactly the same cycle as we saw prior to the economic reforms of the New Deal, when the marginal tax rate increased, and which had come to an end after taxes were raised.

Now, don't get me wrong - paying taxes sucks major donkey di. . .okay to humor my fourth reader, I will avoid profanity here. Paying taxes, for the individual, is a terrible thing, and no one wants to pay taxes. But like speed limits, a higher tax rate is good for the country as a whole. Additionally, if we raise the marginal income tax rate, but keep other tax rates lower, such as capital gains on long term investments, etc., we can funnel money towards capital investment (which is what would happen anyway), and ease the burden. What you will definitely see, though, is a sudden and precipitous drop on executive pay, which everyone agrees is too high.


So, paying taxes may suck major donkey dick, but that donkey is the United States, and it is in desperate need to get off.


And that is why a higher marginal tax rate would be a good idea.

*Also known as "Bogart Baiting"

1 comment:

  1. Don’t go to the light…don’t go to the light…don’t go to the ZAP!

    I just can’t stay away.

    You are killing me smalls. Equating the boom-bust cycle with the lower tax rate is one of the worst connections you could have made. Why don’t we just say the Boom-Bust cycle corresponded with the legalization of abortion. Or that it is directly tied to the rise of the mini-van.

    It is a red herring, designed to try and prove out your thirst for never ending ways of spending my money.

    Look, I am all for a safety net. I am all for public education. I even admitted to you that I see value in proving BASIC medical care for our citizens…but the thought that our problems are because the rich don’t pay enough is just ludicrous.

    The top 5% of earners pay almost 60% of all the taxes in this country. Fair share? Yea, I think so.

    The problem that you and Nancy P. have is understanding that there is a limit to the amount of money in the bank account…just like you…just like me…just like Greece…just like Ireland. You can’t spend and spend and spend and spend and just expect the successful to front the cash.

    Real life happens and we need to figure out a way to live within our means. And I am not just talking about you and the dog.