Editor: Paul L. CaronPepperdine University School of Law
Monday, November 2, 2009
By Paul Caron
The Tax Foundation computes the income tax rates necessary to close the deficit:
Tax, Think Tank Reports | Permalink
Listed below are links to weblogs that reference A 95.2% Income Tax Rate?:
Or Congress could stop spending.
Posted by: Rob Crawford | Nov 2, 2009 7:03:20 AM
I suppose it should be obvious that if anything approaching these tax rates existed, the people subject to such confiscatory taxation would make different choices and reduce their taxable income.
In other words, the deficit CANNOT be closed by increasing government revenue -- only by reducing government spending.
Posted by: Anonymous | Nov 2, 2009 7:06:35 AM
Of course, these calculations are wrong, since if this was the tax rate, a large number of people would quit working and the economy would collapse. The real answer is that it is completely impossible, which I guess the people producing this statistic realize and intended to communicate.
What's disturbing is that even at present taxation models, fewer and fewer people are working... outside Texas. Unless they find diamond covered platinum balls in Area 51, I do not think the government could possibly pay off its debt. There's no plan to... just a plan to push this problem off onto the next generation, which was the same plan as last generation and the one before that. We've been rushed at the breaking point alarmingly quickly since 2008... and the benefit of some of the spending today is so slight compared to the damage it's causing that it's tempting to be paranoid and say the people spending this money actually want America to collapse. Of course, they really are just incredibly selfish and want their short termed power and graft, regardless of the damage.
Posted by: Hope and no Change | Nov 2, 2009 7:06:47 AM
Think of that as a grade on an exam. It'll be easier that way.
Posted by: BumperStickerist | Nov 2, 2009 7:07:09 AM
The document does note that the calculations DO NOT take into account people might changing their behavior in the face of a 95% Federal tax rate. With state and local taxes added in, the total tax take is easily over 100%.
How many patriotic Americans will continue to work for a negative rate of pay?
Posted by: Gumlegs | Nov 2, 2009 7:09:28 AM
Imagine the number of dual-income families that would become single income families if rates anywhere close to this were implemented.
At those rates, it's cheaper to decrease your lifestyle than work.
Posted by: jeff | Nov 2, 2009 7:16:10 AM
I have a simple solution that is perfectly fair to the boomers and the elderly. My generation (I'm 26) has had several trillion dollars in debt either added or lined up to be paid off. We will pay the burden of the bailouts and other handouts, not our parents. Therefore, Social Security and Medicare must be means-tested; anyone with outside income, including military veterans, corporate employees and state employees with pensions, must give up their Social Security payments.
That would be a solonic compromise that would balance the budget and ensure Social Security for those that truly need it. Complaints of "I paid in all of my life" are particularly unconvincing to those of us in my generation who know for a fact that we won't receive anything from it...
Posted by: Mike T | Nov 2, 2009 7:20:01 AM
Factor in state and county tax and hitting the magical 100% rate is not too difficult. This is a rather remarkable calculation because this will be the wave of the future. We will indeed be working "for the man."
I can't even hope to be dead before this comes true because the gummint will probably take whatever money I have left.
Thanks very much.
Posted by: subrot0 | Nov 2, 2009 7:21:07 AM
A 95.2% taxation rate? The Democrats, in particular, should remember that revolutions have begun over a lot less.
Posted by: MarkJ | Nov 2, 2009 7:22:59 AM
Remember, Biden said it was patriotic to pay your taxes.
Posted by: Roux | Nov 2, 2009 7:25:26 AM
Yesterday I spoke casually with a long-term employee of the Department of Energy. This person said it was an exciting time for them, with unprecedented and unimaginable gigantic amounts of money to spend. She said they will be able to accomplish more than they ever dreamed of. They are also hiring in droves.
Tar and feathers, anyone?
Posted by: Liberty Jane | Nov 2, 2009 7:42:04 AM
Taxing an income of $383,000 at 95.2% would give the individual a residual $18,400 left over afterward. Wow.
Looking at the next bracket down, taxing an income of $250,000 and taxing at ~89% gives a take-home income of $27,500. Again.........wow.
Posted by: Techie | Nov 2, 2009 7:50:51 AM
Gumlegs, Hope and no Change, and Anonymous:
Yes, the chart does not take into account the likely changes in behavior that would be produced by the indicated change in tax rates.
Note also, that none of the accounting by the government ever accounts for legislative consequences, either, which is how a lot of this nonsense manages to get passed in the first place.
Posted by: Troll Feeder | Nov 2, 2009 7:59:27 AM
so, the tax rates which impoverish the "rich" is nothing more than a total income redistribution scheme.
Posted by: GM Roper | Nov 2, 2009 8:14:31 AM
It's important to realize that the tax system is progressive. People seem to not realize this really often. While yeah, a 95.2% tax rate would be truly absurd, that's still only on applicable income over $383,000. So for someone making $500,000 a year, the top bracket rate only applies to the last $117,000, not to the whole year's income. And the same goes for each bracket down.
Posted by: JoeJoeJoe | Nov 2, 2009 8:15:54 AM
"Taxing an income of $383,000 at 95.2% would give the individual a residual $18,400 left over afterward. Wow."
Just about enough left to pay the Georgia income tax on $300,000. Amount left over = $0.
Posted by: willis | Nov 2, 2009 8:16:18 AM
There are two other ways Washington can get out of this mess: (a) inflate its way out, or (b) default on its debt. Somehow I suspect that the problem will be "solved" by some combination of these two. Defaulting on debt repayment is particularly easy, since it simply requires that Washington do what is easiest, which is to continue to ignore the problem.
Posted by: GregS | Nov 2, 2009 8:25:04 AM
The plan to pay off the debt is simple: print more money. Inflation will rise, US credit will plummet, and we won't be able to borrow any more money. We will HAVE to live within our means then.
Posted by: Jay | Nov 2, 2009 8:30:53 AM
I would like to think that someone who identifies himself as a "techie" would understand the concept of marginal tax rates, but then I've always been a cockeyed optimist...
As for the post: the usual deficit terrorist nonsense, prompted by an utter lack of understanding of the monetary system. If you want to understand something of the reality of the situation, go here:
Posted by: Jim Baird | Nov 2, 2009 8:31:15 AM
I say put higher taxes on Democrats.
It's time for those losers to put their money where their mouths are.
Posted by: JB | Nov 2, 2009 8:35:37 AM
Why do we want to eliminate the deficit? Some debt is good. When a catastrophic event occurs, debt helps us recover faster.
A progressive tax structure does not work like that. It will reduce wages of the top 0.1% of earners for any amount they made over $383,000, not on the whole $383,000 itself.
An income tax rate of 95.2% in addition to the FICA and medicare payroll taxes of 7.65% would essentially put a earning cap on American couples at $383,000. It's one way to lower CEO pay, isn't it?
The real consequence would be employers only paying up to $383,000 in wages per year. The money the government would have received because of a lower rate would completely dry up, leaving them with less money than before.
Posted by: JohnAllison | Nov 2, 2009 8:37:39 AM
Greetings; I'm an attorney.
I was thinking if one ever added the hours one takes to get an education so as to have the typical $250,000+ income, i.e., from age 14-28 (15 years) and assigned a value to them (which being youth ought to be more somehow), and included sales taxes real estate taxes, etc.; the hardest working people in this country - the doctors, lawyers, engineers, bankers, computer scientists, etc., pay 80-90% NOW.
It would be a op-ed or article ... for the otherwise non-lazy.
PS $787B could have given 4 million school kids $15,000 vouchers for K-12.
Posted by: The Masked Defender | Nov 2, 2009 9:07:23 AM
So how come there was no big push to control spending or the deficit when George W. Bush was in office?
Posted by: JP | Nov 2, 2009 9:27:27 AM
You do not understand the marginal tax rates. The 95.2% tax would only be charged on the amount of taxable income ABOVE $383,000. Here is a table of what people at different levels of income you would pay on different parts if you earn $1 million.
income up to tax paid total tax Total
on portion you keep
$16,750 $4,556 $4,556 $12,194
$16,700 - $68,000 $20,910 $25,466 $42,534
$68,000 - $137,300 $47,124 $72,590 $64,710
$137,300 - $209,200 $64,566 $137,156 $72,044
$209,200 - $373,600 $125,273 $262,429 $111,171
$373,600 - $1,000,000 $477,317 $739,746 $260,254
Also the tax table assumes that the deficit is going to be eliminated using only personal income tax. What about the corporations that earn billions and pay little or nothing in tax. What about the rich who live off their inheritances and pay only %15.
Posted by: muddmike | Nov 2, 2009 9:44:47 AM
Jeff @ 10:16
Sorry chump - your (simple solution)idea might have some merit were it not for the fact that 'your generation' is the one that put Him in office.
Did it ever occur to you that rather than being divisive, that it might be better to help in getting rid of 'the one' and his agents in the next election? I'm just sayin' ...
Posted by: Walt | Nov 2, 2009 9:48:31 AM
At what point do the "Citizens" of the united states of America stop taking this? What is not told here is that the effective tax rate is already 50%. And this article also fails to mention why, supposedly as natural living beings, you are paying "Income Tax", defined as a tax on the profit of a corporation, in the first place?
It's because you are all corporations with regards to us law and don't even know it. Natural persons are not subject to income taxation since they are not corporations. You are all living under a fictitious name that represents you as a corporation in law, as per your birth certificate. Learn these truths and stop this madness!
Posted by: At what point? | Nov 2, 2009 10:04:45 AM
Other Jim says to put the higher taxes on Democrats. Gee, haven't we already figured out that they don't pay their taxes? Taxes are for the little people...
Posted by: Jim | Nov 2, 2009 10:13:43 AM
Who was it that said taxation without representation is tyranny before what certain even in this country? The Declaration of Independence is timeless. We should read it more often, along with the history of our own country.
Posted by: newdomesticterrorist | Nov 2, 2009 10:40:59 AM
I'm glad GM Roper understands marginal rates, and it's disappointing that so many people do not. What else do they not understand? Making social security means-tested is something I've advocated for years; it is, after all, a program designed to assist those without adequate pensions, and as for paying in without getting anything, be glad if you've received nothing from the fire insurance company to which you've been paying insurance premiums for years (though, technically, one is "getting" something, namely, insurance protection). The pay-out, incidentally, is fare more than what people pay in. That works for fire insurance (most homes don't burn down) but not for social security (almost everyone grabs some). Unfortunately, restricting social security to those qualifying under a means test will not erase the deficit. It won't come close. How about a tax on the folks who got huge tax cuts on the promise of "trickle down" that never happened? Plus interest. :-) As for cutting spending, great idea in theory, but ask Californians what it's like when government shuts down, prisons are closed, etc etc. The bottom line problem, deeper than monetary issues and tax policy, is that the earth's resources aren't infinite.
Posted by: Jim Maule | Nov 2, 2009 10:47:02 AM
"One of you, nineteen for me"
"If five percent appear too small, be thankful I don't take it all"
Posted by: Jeff Walden | Nov 2, 2009 11:07:31 AM
Income tax is a crime.
Posted by: ed | Nov 2, 2009 11:25:27 AM
I would feel badly about leaving the debt to the younger generation - however, they understood exactly what Obama planned to do, they can add and subtract, and they voted for him. Unfortunately, for whatever reason, my grandchild did not vote for him and yet she will inherit the debt.
Posted by: Fran A | Nov 2, 2009 11:50:11 AM
Er, "One for you" not "One of you". Beatles lyrics fail.
Posted by: Jeff Walden | Nov 2, 2009 11:54:32 AM
Jim Maule @ 1:47 pm:
No, the earth's resources are not infinite. But agriculture is. And so is the process of innovation and efficiency that arises from human nature.
What is certain is that government that grows will eventually collapse from bureaucratic overburden, inefficiency, corruption, and gross mismanagement. The only way off this railway is through economic liberty, respect for private property, and minimally regulated markets where innovation is encouraged.
The only 3 things that a National government does better than the private sector is (a) provide for a common defense, (b) assure laws are administered with blind justice, and (c) grow big, fat, and corrupt.
Posted by: Reasoner | Nov 2, 2009 12:09:57 PM
I love the idea of means-testing SSI. Let's see...Joe Blow down the street and I make the same income. JB spends all his money on 103" TVs and sports cars, bass boats, etc, and doesn't put a nickle into a 401K or similar. I forgo such luxuries as 2 week Club Med vacations and conspicuous consumption, and save that money instead for my retirement.
Then Joe and I both retire.
Joe takes his SSI money...and mine, because, as a reward for my scrimping and saving for my working life, I now have "too much" money and get means-tested out of the system.
I think this is what economists call a perverse incentive.
Posted by: Vance | Nov 2, 2009 12:13:50 PM
Actually, the highest bracket receives a negative tax in the form of trillion-dollar bankster subsidies. As for closing the deficit, don't worry, it'll come out of your Social Security and Medicare.
Posted by: washy | Nov 2, 2009 12:14:53 PM
i, for one, would stop working...
hell, ive only been able to work 3 months the last two years because of the underway economic collapse...
way to go government, bankers, and corporations...fascism with your coffee anyone?
Posted by: lol | Nov 2, 2009 12:50:46 PM
Those rates are similar to the tax rates between WWII and JFK, when the upper bracket for Federal rates was 92%.
Posted by: m | Nov 2, 2009 1:21:38 PM
I predict massive non-compliance if tax rates are significantly increased. When the government take is too high, the "taxpayer" is better off putting marginal extra effort into moonlighting for cash.
Posted by: George B | Nov 2, 2009 2:24:47 PM
The 16th Amendment was not ratified according to the Public Record of the Vote from the States which voted on the Amendment in 1913.
So, the IRS owes American Citizens a refund for the last 100 years, roughly.
Posted by: Rob | Nov 2, 2009 2:35:43 PM
I am not paying off the baby boomer debt (I am 28) nor will I pay those taxes.
In the event that they try, I will quit my job and take what I need with a gun from all the baby boomers who created this mess.
Posted by: Evan | Nov 2, 2009 2:49:53 PM
Those numbers are just too depressing. Its hard to look my kids in the eye.
Posted by: guy in the veal calf office | Nov 2, 2009 3:01:50 PM
I think what is most depressing is that we keep coming back to discussions of trying to get politicians to acknowledge that government spending is the issue. My goal is to see that every "redistributed" dollar is reported the same way an invested dollar is reported...under a new name. IRS Form 1099-GOV. When the people see how many non-productive people are scamming the system (we all know but cannot prove) things will begin to change. The required reporting of income, even if not taxed, will entail the same penalties as the regular working man faces. It really is time for personal responsibility..the kind that actually has a downside for failure to act!
Posted by: SenatorMark4 | Nov 2, 2009 3:55:08 PM
I love how even the mention of these income tax rates creates resentment/hatred in the comments: by generation, by class, by profession, by have or have-not. It doesn't have to be this way, people. Anyone up for the FairTax now?
Posted by: MochaLite | Nov 2, 2009 4:14:07 PM
Let me get this straight we borrow money from the private banks(the Fed) which they charge us interest for creating our own money then we turn give the money back to the same banks which then hoards the cash and will not lend it out to the America people oh I forgot we also bailout other countries banks like AIG so they could pay goldmans.....uhhggg then in the future when we can't pay back the huge amount we own the banks will come in and buy our highways and infrastructure for pennies on the dollar --- What a scam
I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.
Thomas Jefferson, (Attributed)
"Give me control of a nation's money and I care not who makes the laws."-M.A.Rothschild
I only regret that I have but one life to lose for my country.-Nathan Hale
End the Fed NOW!!!
Posted by: Rex84 | Nov 2, 2009 5:07:28 PM
I think that most of the deficit spending happening today will come to be seen as meeting the legal definition of "odious debt" which may be repudiated by the debtors saddled with it. The current US government is hopelessly beyond reform; the debts it is running up in our name for illegal wars and blatant looting by banks is not in the people's interests; whoever is loaning all this money to the government knows this with a minimum of due dilligence to find out; therefore we the people don't owe them a dime.
Posted by: Tom | Nov 2, 2009 6:31:47 PM
Get yourselves outside of the income tax box! It is not the right tax base, and we're trapping ourselves by accepting it.
Natural resources are awesomely valuable.
Urban land is awesomely valuable.
Adam Smith's Canons of Taxation still stand.
Why are we even talking about income taxes?
Posted by: LVTfan | Nov 2, 2009 7:15:38 PM
Typical wingnut propaganda. Yeah, if all the other rates were left as is and you closed the deficit with just a tax increase on incomes over $373K, the marginal rate would need to be 95%. But no one's going to use just that group, and no one is going to plug the deficit right away.
But hey, when did telling the whole truth ever concern a wingnut, anyway?
Posted by: Magic Dog | Nov 2, 2009 7:58:22 PM
Can someone please explain to me one thing... If we continue to tax the wealthy (Who typically own the companies people work for) who is going to continue to establish companies and re-invest their wealth into the economy? Besides, at those extreme tax rates, a wealthy person will just find a good tax attorney and hide their money right?
Posted by: Frankie | Nov 3, 2009 12:17:55 AM
you missed one important thing. Since you now have capital in your 401(K), that's an asset and it will be taxed as such. So you will continue to pay taxes to support JB down the street.
Obviously the "experts" trying to explain "marginal tax rates" doesn't have a clue how they work, except as a mathematical excercise.
Lets see if I can make it simpler:
You have a job that makes $100 an hour. you are now offered to work overtime, with the same pay. For every hour you work, you will take home a cool $5. So how many will think that's a great deal, and put in lots of overtime, and how many will decide it's not worth it and go home instead?
Socialists usually counter this argument with "that's great, just hire more people instead, jobs for everyone, horray!". But what if the guy that decides to go home is the guy running the business, offering the jobs? He's just decide that it's not worth the time he puts into it and scale down, maybe lay off 50% of his employers, and keep it where he makes enough money to make it worth it. Or simply move the company somewhere were more work means more money.
This is where socialists realize that running a company cant be left to private interests, and decide the right thing to do is to take over all companies, to be run in the "interest of the people", offering jobs to everyone, and high pays regardless of productivity.
And everyone with a basic knowledge of history and political systems around the world knows where that road leads. Except socialists, who claim they'll get it right sooner or later, promise...
Posted by: Erik | Nov 3, 2009 3:14:31 AM
Unfortunately its not only the math against you but the empirical data too.
You know that running a business can be a 80 hour job with 5 or 50 employees. And at some point you are taking advantage of scale and ownership, something economists calls "rent" you essentially derive income from no additional work or effort at all. Would you say no to essential free income even taxed at 90%, some people might and do. The problem is that there is some other guy just waiting to take over your market! You are really not that special unfortunately... Ahh who would have thought competition and freedom would be the enemy of good!
Posted by: Dan | Nov 3, 2009 8:10:49 AM
The top income tax rate in the 1950's was 92%, and yet these comments are full of outrage and predictions of doom. Courtesy of well-funded propaganda, many people have fallen in love with an America that never existed.
Posted by: Eric | Nov 3, 2009 8:39:22 AM
And what rate would a VAT have to be? Clearly income tax isn't the answer.
Posted by: S | Nov 3, 2009 10:42:32 AM
Here we sit battling about crumbs, and battling within the confines of "their" cage . The cage in which "they" want us(the left-right paradigm). Battling over morsels and crumbs of material gain that much of which was ill-gotten via "legalized plunder" (ref. frederic bastiat). While all the while freedom lies in the gutter without so much as a glance. Why? How could this be? Well perhaps that "we the people" are simply "we the sheeple".
Our masters simply wave the magic wand and poof! -- Their wish, is our command! We follow it without a thought. -- They are our MASTERS, we are THEIR property. Oh, you disagree? Really?... so why do you let them plunder you? IRS, state tax, property tax??? Constant Constitution violations?? Are you your own man? A sovereign entity? I think not, more like an indoctrinated fool under the spell of the Rousseau-ian cult masters.
Wake up folks, if you don't know what freedom is, how can you expect to preserve it? Read Bastiat's ("the Law") and Locke, then read in contrast, Robes Pierre and Rousseau. The truth will set you free. Educate yourselves- time is short!
--- Sorry for the bluntness, but we don't have time for mollycoddling. So Please, I urge you, please educate yourself on freedom, please leave the cage of confusion, and escape the left-right paradigm. Then join me and others in the fight for freedom!
Note:(Free mp3) Download and listen to the two hour mp3 of Bastiats "The Law" -- freeaudio.org/fbastiat/thelaw.html
Posted by: TMike | Nov 3, 2009 10:47:18 AM
Perhaps we could get competitive bids on "Big Corporations" to run our government? We could go Off Shore to get a better price and then pay less taxes????????????
Posted by: big spender | Nov 3, 2009 1:44:48 PM
In 2003 I sold my home at the top of the local market, took the tax hit and cashed in my retirement plan. I bought physical gold and silver with the liquid proceeds of the above transactions and then moved to the countryside in the south of France.
After 911 it was clear that the inmates had gained full control of the asylum. I have had 8 years of confirmations of this fact.
The very first comment to this blog is the only one that touched the objective reality of the situation:
"In other words, the deficit CANNOT be closed by increasing government revenue -- only by reducing government spending."
Anything else is noise.
I voted for Ron Paul. I will vote for him again, given the chance.
Au revoir et bonne chance
Posted by: expat | Nov 3, 2009 2:26:48 PM
Has anyone read Atlas Shrugged lately? If not, you ought to do so.
Posted by: Pat | Nov 4, 2009 6:21:14 AM
Been there, done that: http://www.truthandpolitics.org/top-rates.php
Posted by: Jo Momma | Nov 5, 2009 11:21:09 AM
Frankie is absolutely right. To make it worse, just wait until the democrats pass their Trillion dollar plus health care plan. The debt will never end. Its all a ponzi scheme. Good luck USA ... with Obama in office, we don't need external enemies.
Posted by: Mike | Nov 6, 2009 3:19:38 AM
This blog is an Amazon affiliate. Help support TaxProf Blog by making purchases through Amazon links on this site at no cost to you.