Kill the Golden Goose: Higher Tax Rates Can Mean Less Tax Revenue

One reporter feels that income distribution in America is less than ideal. That is true, far too much of our income is upwardly distributed to the government and their cronies who build non-functioning websites, unsuccessful energy companies, and cars no one wants. But this reporter thinks the problem is the people who produce, not the leeches attached to their jugulars. He suggests that the top tax rate be raised to 80% because, to hell with the economy, we’ve got to punish the rich! After all, the top tax rate was 90% after WWII, you know, just after most of the world’s manufacturing capability was destroyed, but not America’s.

So now, in the most competitive global economy ever, with abysmal job creation, somehow taxing 80% of what the most productive Americans earn will have no negative effect on jobs and the economy. Somehow, raising the minimum wage to $15 will not slow job creation, will not keep people from hiring, and will not leave more unemployed without the chance to gain skills. Magically, the rich will continue working for merely 20% of what they produce, jobs won’t go overseas, and companies won’t raise their prices. And if you believe all this I have a bridge to sell you.

This reporter, and many others, like to pretend that the top marginal income tax rate only applies to the super rich. This is not true. Earning more than $400,000 a year puts a person in the top income tax bracket. What surgeon is going to keep doing brain surgery, with all the costs and risks, only to make $80,000 in the second half of the year, for the same effort put in for $400,000 in the first half of the year? They won’t, they’ll go on a well deserved vacation to Hawaii, because the work and risk is not worth the reward. This means longer waits, fewer and less skilled surgeons.

Or what about the CEO who makes $10 million a year running a grocery store chain. He might decide to retire early since he only takes home $2.3 million despite earning $10 million. Since everyone who has the skills to properly manage a large successful business also has the means and investment and savings to forgo future employment when the reward is not great enough, this means less qualified people running the grocery store chain. Say goodbye to fresh vegetables, well stocked shelves and affordable products. CEO’s don’t get paid a lot for nothing, they get paid for their skills in making the company money–money that is taxed.

So great, the government makes almost $8 million off this CEO the first year they tax the top bracket at 80%, and $70 million in corporate and capital gains taxes on his company. Then the next year they only make $4 million on the salary, because the new CEO is not as skilled as the last, so he doesn’t get paid as much. As a result, the company does not do as well, earning 75% of the profits from the previous year therefore only contributing $53 million in taxes from corporate and capital gains. The $8 million gained from the CEO being taxed at 80% the first year is quickly lost in a less profitable business, which contributes fewer dollars in taxes from the lower profits of the company.

What could have been a continuous $70 million per year in tax revenue could turn into $78 million the first year, then quickly shrink the next year to $57 million. This is a case of killing the goose that lays the golden egg. If the government would just leave alone the people who do the most work, and produce the most, they could have their cake and eat it too. But its never enough for the government, they always want more, more money, more power, more control. But they don’t seem to realize that when you bite the hand that feeds, you stop getting fed.

2 thoughts on “Kill the Golden Goose: Higher Tax Rates Can Mean Less Tax Revenue

    • That article is full of great info, thanks for showing it to me! I’ll have to summarize it for a post. I especially like how he starts by explaining that obviously no one would work if 100% was taken in taxes, meaning no revenue. If people can understand this, they should understand that the continuum will cause similar effects, and the graph is a perfect illustration.

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