Sunday, March 1, 2009

Tax policy and the tyranny of the majority


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The wise Frenchman de Tocqueville warned about 170 years ago that "the American Republic will endure until the day Congress discovers it can bribe the public with the public's money."

The majority of low taxpayers or non-taxpayers absolutely believe that marginal tax rates should go up in order to gain more services in the short-run. So what is an appropriate level of progressive taxation? Increasing marginal tax rates will increase the progressivity but the slope of progressivity was already increased with the new tax credits in the stimulus package. The top 2% of taxpayers already pay just under 40% of all tax revenues. Is that progressive enough or should that number be higher? Fairness may not be measured on a relative rate but as the percentage of what is gained relative to total income. So where is job creation going to occur if the marginal rates go up?

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