As Washington prepares for a 2025 dominated by tax policy—led by the issue of whether to extend the expiring 2017 tax cuts—the debate is likely to bring a fresh recirculation of the most common myths about the federal tax system from both the left and the right. On the one hand, the false conservative narrative […]
You didn’t read my comment.
You saw “91%” and thought I was repeating “Myth” #4. I was not. You either didn’t read my comment, or you didn’t understand what you were reading.
Of course they didn’t. Nobody paid that amount, because if they were close to the top tier, they would “increase deductible expenses”, as I said:
That additional “business” spending put their net, taxable income back under the line. That additional spending turned into paychecks for workers selling goods and services.
With the punitive top-tier tax rate, businesses models targeted the line. When they found themselves $10,000 north of the line, their options were to either accept $900 of that as profit, or pay a “business expense” of $10,000 to stay below it. They got to choose between receiving $900 of value that they could spend on anything, or $10,000 of value that they could spend on “business”.
As you said: Nobody paid that 91% tax. All of them stayed below the line. All of them spent their excess income, (or reduced their revenue) to stay below. That tax rate encouraged the kind of spending that became your parents’ / grandparents’ paychecks.
Which is why they earned higher wages for less productivity than you.
Without those punitively high tax rates (that nobody paid), that spending didn’t happen. Instead of spending their excess earnings and creating paychecks for other people, they raked off the profits and bought securities. Instead of creating paychecks for workers, they become larger shareholders of the companies employing those workers. They created more obligations for those workers. Even as productivity soared, wages stagnated.
Tax revenue is how much the federal government takes from the private sector. We should not be seeking to maximize tax revenue. Tax policy needs to focus instead on the broader follow on effects on the economy. Business spending is maximized when businesses act to avoid taxation. They should be playing “hot potato” with their revenue, turning it over into expenses as rapidly as they can. If higher tax rates reduce total tax revenue relative to GDP, we should be increasing tax rates.