What is the revenue maximizing tax rate?
- Thread starter jagadish
- Start date
It's true that "published" tax rates went has high as 91%, but nobody actually paid those rates. During 1940s-1960s there was something called "non-recourse leveraged tax shelters" that wealthy people used to lower their taxes. The last of the allowable non-recourse leveraged tax shelters were eliminated in the 1980s.
A study done by the IRS in 2003 showed that the upper 1% of income earners in the 1950s paid about 25% of their income in federal taxes. In other words, even though the published rates rates went as high as 90%, the actual "effective rate" was only 25% because of the use of tax shelters.
The other thing to keep in mind is that the high rates back in the 1950s didn't kick until you made over $200k (70%), and then again at $400k (91%). In today's dollars that would be about $2.5 million and $5 million.
A study done by the IRS in 2003 showed that the upper 1% of income earners in the 1950s paid about 25% of their income in federal taxes. In other words, even though the published rates rates went as high as 90%, the actual "effective rate" was only 25% because of the use of tax shelters.
The other thing to keep in mind is that the high rates back in the 1950s didn't kick until you made over $200k (70%), and then again at $400k (91%). In today's dollars that would be about $2.5 million and $5 million.
Some of my assertions are, I believe, self evident; the others are strictly my personal opinion. I would be happy to hear counter arguments that are logically consistent.
For example, would you think the typical voter would rather have lower tax rates and higher inflation, or higher tax rates and lower inflation? I don't think the choice has ever been put to voters stated in that way, but the stump speeches of politicians and their actions answer the question for us. Voters would rather have low lower tax rates. As a consequence revenue shortfalls from lower direct taxation are made up by borrowing. The debt can be monetized to one extent or another and the result is inflation, though that is not by any means the sole source of inflation, as I know you understand.
The assertion that indirect taxation via inflation damages the fabric of society is strictly my personal opinion, based on what segments of society should be hit hardest by inflation. I don't think this position is provable, as there are too many other factors to consider as well. You just have to accept it as logical or reject it favor of a counter argument.
By the way, when I wrote "we must be paying more now" I obviously did not mean that the highest tax bracket is greater now. I meant that the total of direct taxation plus the inflation tax combined must be greater. That is one of the self-evident statements I made that does not require any proof. Comparing the Federal budget then and now will show it to be true.
