President Obama needs to stop saying that America’s taxation system must become more progressive. It is already very progressive, and this graphic shows it very clearly.

Income group vs. percent of national income vs. percent of taxes paid

This is a beautiful graphic. It says so much, so simply and so clearly. And it destroys every word that comes out of our president’s mouth about taxes and his beloved 1% meme.

via This chart shows just how progressive the U.S. tax code already is – The Enterprise Blog.

  1. Bob Van Valzah said:

    How progressive is too progressive? Why should Obama stop trying to increase taxes on the rich? I know that it won’t make a large difference in income for the treasury, but any tax dollar paid by somebody else is one I don’t have to pay. Unless you’re in the group being taxed, why argue to tax them less? Even Warren Buffett wants his taxes increased. What’s wrong with that?

  2. And if that dollar stays in your pocket, or the rich guy’s pocket, where it can multiply and create real wealth, or be spent or saved as you wish, then the economy grows more than if government gets it. We shouldn’t assume that dollar is destined for the government when in fact, it belongs to the person who earned it.

    I’m hardly an economics expert but I think I understand this issue fairly well. Raising tax rates above a certain point hurts the economy, no matter what Warren Buffett thinks. And since the U.S. already has one of the most progressive tax systems in the world (and more progressive than all of Europe), and it is growing more progressive over the last 30 years, and since in the Eurozone today we see the ultimate impact of such policies and trends, and our future without true spending cuts (not the Washington kind, where less spending means a “cut”), I think it’s pretty clear that there is a ceiling on progressive tax rates, and we have reached it. There are physical limits to how far this can scale, because tax rates are not just a slice of a fixed pie, ie, a multiplier applied to a static economy, they actively influence the economy, to create growth, or to slow existing growth, or even to cause contraction.

    In addition, given where our tax rates are today, if Obama is serious about wanting to reduce the deficit, he would propose LOWER tax rates, because lower rates lead to more revenue. This is because tax revenue tracks with GDP, not with higher tax rates. And since raising rates tends to shrink the economy, the result is lower revenue.

    But other bloggers know much more about this than I do, such as Daniel J. Mitchell, who just today says even Sweden is now more free market oriented than we are, and their tax cuts are growing the economy.

  3. Bob Van Valzah said:

    I certainly don’t want to live in a world where every dollar I earn belongs to me. I want somebody else to maintain roads, hire police, firefighters, etc. But this is getting off your original point of trying to muzzle calls for more progressive taxes.

    I agree there’s a ceiling on progressive tax rates. I don’t agree that we have reached it. There are good data to back up my belief that I’ll cite below.

    Let’s talk about what’s best for us and not talk about what other countries are doing. I don’t think any other country’s tax system should be held up as a model we should follow. Even within our country, it’s notoriously hard to tease out the differences between correlation and causation.

    Maybe we can agree that we would not want taxes so progressive that the rich just slacked off and stopped trying to earn more. That would clearly be counterproductive if it got that far. It would hurt everyone since income from taxation would drop.

    Maybe we’re past that point already? Maybe we’re getting close?

    Nope. We’re not even 1/2 way there. According to research cited by another blogger, the super-rich in this study (the top 0.05%) didn’t lose their incentive to earn until the tax rate reached 84%.

  4. Some things we agree on, yes. I’ll have to look at that link later. But I’ve read many other things that contradict that claim about incentives not dropping until tax rates hit 84%. And tax rates on the rich affect a lot more than just the taxation on their income, since their investment is often what fuels job creation and economic expansion. But I don’t have time to reply completely now, but will later.

  5. Bob Van Valzah said:

    Thanks Jeff. Here’s another (short) economists blog post citing more research suggesting societal benefits from raising the top tax rate. Here’s my favorite quote “Thus we conclude that raising the top tax rate is very likely to result in revenue increases at least until we reach the 50% rate that held during the first Reagan administration, and possibly until the 70% rate of the 1970s. …” See the full post and research citation here:

  6. Thanks Bob. To summarize:

    So, it’s all about where you get your info, more or less. I understand the Keynesian POV on taxes and government spending, I just think they are wrong, and I think that because the weight of the evidence that I have seen proves it. I think you are like I am: it’s all about evidence. And until I discovered other sources of news, especially those friendlier to libertarian “free markets and free people” ideas, I knew little about the arguments for, or evidence in favor of, lower taxes and the connection to economic growth. Think tanks like Cato and Heritage, for example, and blogs by people like Instapundit. And once I discovered the power of these ideas, and how well they work, I have not looked back.