re: #313 palomino

First off, the top effective tax rates are nowhere near 50%, even if the Bush cuts are allowed to expire.

Second, moving the top rates from 35% to 39% is hardly oppressive. During the 90s, it did not have the effect you describe, as the economy hummed along and the top 10% did as well as at any time in our history.

Finally, your scenario is unconvincing. You suggest that a couple wouldn’t be willing to work harder for 200k net take home pay than they would for 140k net. Do you really know people who aren’t willing to work harder when they can increase their income by 42%? I don’t.

The point is that this scenario kicks in for different people at different tax rates. Any tax increase is going to prompt some amount of rethinking whether it’s worth it. A big tax increase is going to prompt more of that.

The problem with your analysis of the couple’s decision is that you pass it off as a matter of merely being willing to work “harder”. How much harder? For twice the before-tax income, you have to put in twice the hours. The body has its limits.

I didn’t make this up, by the way. In rough numbers, it reflects a situation involving people I know. Not me, I decided early on in life that the big house with the big view wasn’t any big deal to me. I make more than average but much less than even the low end of the scenario I posted.

You must keep in mind that federal income taxes are just one of the bites that taxing authorities put on income. It also helps to keep in mind that these new and higher rates are hardly the end of the story. Unless they prove completely counterproductive, or maybe even if they do, there will be agitation for yet higher rates next time Congress meets.

You also didn’t seem to catch that the higher work effort, higher income scenario is simply not possible without substitution of money for labor in the home economy. Only money that remains after those expenses is available for big house big yard aspirations. Effective tax rates don’t have to approach 100% to choke off the kind of effort I’m talking about. A 50% marginal rate, combined federal income tax, medicare tax, state income tax, etc. etc. is hardly an unrealistic threshold, and it’s hardly an unrealistic scenario for where the administration is going.