Mike Kueber's Blog

November 11, 2012

Oppressive taxation

Filed under: Economics,People,Politics — Mike Kueber @ 12:41 pm
Tags: ,

There has been a lot of talk about the rich wanting to pay higher taxes.  President Obama and the Democrats defend this position by pointing to my hero Warren Buffett, who, indeed, has said the rich should be taxed more.  Republicans argue that a tax increase on the rich will cost the economy 700,000 jobs, while the Democrats counter that their proposal will merely return the tax rate on the rich to the amount it was during the Clinton boom times – i.e. 39.4% on income over $388k.

Although the Democratic proposal is anathema to Grover Norquist and the TEA Party, I think it makes sense for the following reasons:

  1. Income inequality is getting outrageous in our nation, and until we can find the economic levers to reduce it, a higher marginal income tax rate for the rich will suffice. 
  2. Under our system of progressive taxation, individuals with a 7-figure income should have a higher marginal rate than those with a 6-figure income. 
  3. Because of our nation’s huge deficit, every little bit of revenue can reduce our borrowing from China. 
  4. Increased taxes on the rich will not dampen job creation.  The real engines of job growth are export-oriented businesses, which usually pay the corporate tax rate.  The world’s highest corporate tax rate of 39% needs to be reduced, and both parties appear to agree on that.

But there are limits to how much taxes can be raised effectively without killing the Golden Goose, and some states might be approaching that limit.  Because Texas doesn’t have a state income tax, we haven’t felt the pain of voters in states like CA or NY.  Despite the pain of a state income tax, however, the voters of CA earlier this week voted to increase the state income tax on the rich from 10.3% to 13.3%. 

Wow!  If the federal rate goes up to 39.4% and the state rate is 13.3%, that is 52.7%.  The Bloomberg article reporting on this development says that hundreds of thousands of people are voting with their feet to leave CA and this tax increase will only speed the development. 

Texas governor Rick Perry has often extolled the virtues of federalism, with the state governments being able to experiment with solutions to problems – e.g., RomneyCare in MA and recreational marijuana in Colorado.  I agree.  Give states the latitude to try something new.  Let California see if increased taxes are a solution to their budgetary problems.  Then we can use that experience to decide what is best for Texas or America.

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