Thursday, October 08, 2009

Do marginal tax rates matter?

I've always thought that the most important lesson from the Reagan years was that lower marginal tax rates do, in fact, foster economic growth. Not just lower taxes, which are obviously helpful, but lower rates on the last dollar earned.

Did I blog awhile back about the Swedish doctors who took the rest of the year off once they reached the 103% marginal tax rate? I think that finally got changed, even the government bureaucrats understood the futility of the 103% rate.

That's why our government has worked so hard to conceal the true marginal tax rate, through a variety of phase-outs and other nonsense in the name of "fairness."

It could get a lot worse, according to TaxProf Blog, who writes: 80% Marginal Tax Rates After Health Care Reform?

Note that these high rates are not on the rich under health care reform. This results from the phasing out of subsidies for the lowest income taxpayers, and strikes middle income workers hardest. Taxes on "gold-plated" plans are a different question.

But won't these tax increases and rate increases violate Obama's pledge not to raise taxes on those who earn less than $250,000? Don't worry, they'll have a spin for that, just as they did when the tobacco tax (which falls mainly on the poor) was raised the first week of the Obama presidency.

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