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Wednesday, October 27, 2004

Marginal Tax Rates 

Punishing the wealthy. If earning $200K gets you a 30% tax rate, and earning $250K gets you a 35% tax rate, what does that mean for your incentives to work harder?

You pay $60K & $87.5K in taxes respectively. This means that the last $50K was taxed $27.5K, or 55%*. This is called a "marginal tax rate".

Studies show that increasing the marginal tax rate has very negative effects on an economy. The incentive to work is lowered, so people take more vacations, work shorter hours, and take pay in warping ways, like lush benefits packages. It lowers investment, lowers the number of goods offered in the market, and also often yields lower tax revenue, because of the incentive to avoid paying taxes.

So what will Kerry's plan on taxes do? First, like a good class warrior, he will raise taxes on those earning more than $200K. This increases marginal tax rates. He will also decrease taxes on the 'middle class'. This will also increase marginal tax rates.

A more flat system is more equitable, and would actually yield higher tax revenue in certain cases.


*=corrected

Comments:
This means that the last $50K was taxed $27.5K, or 75%.
Last time I checked 27.5 our of 50 was not 75%.
 
whoops -- corrected. still, 55% is VERY high.
 
Thanks author!
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G'night.
 
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