The Economic Cost of Raising Tax Rates?
The Tax Foundation published a new Fiscal Facts today, authored by Robert Carroll, that should be required reading by every member of Congress. Carroll explains that high tax rates come with an economic cost, introducing the study thus:
“President Obama appears intent on carrying out his campaign promise to raise tax rates on high-income households, but the surtax proposal that passed the Ways and Means Committee to finance health care expansion goes much further than most had anticipated. This is a policy to be wary of.
“High tax rates come with a high economic cost, they raise less revenue than the casual observer might think, and they fall heavily on the entrepreneurial sector. Moreover, they do little to address the more fundamental explanation for the widening gap between rich and poor: the globalization of labor markets.”
Carroll goes on to discuss in further detail just how high tax rates are likely to go; the economic effects of high tax rates; how the federal tax base will shrink; the effect of high rates on the entrepreneurial sector; and the widening gap between rich and poor. For liberals who partake in class warfare and think the “rich” should pay their "fair share," consider what Carroll has to say about higher tax rates shrinking the tax base:
“What is critically important from the government's perspective is that while it collects an extra 10 cents for every dollar subject to the higher rates, it loses over 45 cents for every dollar by which reported income falls due to taxpayers working less or otherwise reporting less income.”
The conclusion in Carroll’s study should be repeated by every policy maker each and every morning -- similar to school kids saying the Pledge of Allegiance every morning. It reads:
“High tax rates carry economic consequences. They cause taxpayers to base decisions more on tax considerations and less on economic merit. They also can be expected to shrink the size of the tax base and raise less revenue than the casual observer might assume. Another important consideration is the substantial effect the higher tax rates will have on the entrepreneurial sector, whose business income tends to be subject primarily to the individual income tax.”