Just as higher tariffs lead to less international trade, higher marginal tax rates would reduce the level of domestic trade, or GDP.
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At the same time, the higher marginal tax rates he demands will reduce the opportunities for economic activity, leading to slower growth and fewer job opportunities for the 98%.
But CBO as well as the Joint Tax Committee woefully underestimate the negative economic effects of higher marginal tax rates, which the market recognizes as implied by higher government spending.
According to an analysis in July by Congress' Joint Committee on Taxation, about 3% of all taxpayers with a net positive business income will be subject to the higher marginal tax rates.
Higher marginal tax rates reduce these incentives more.
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In any case, progress in averting the fiscal cliff will depend on one side acknowledging the need for more tax revenue and the other side acknowledging the negative incentive effects of higher marginal tax rates.
Looming in the immediate future are all of the top fears of small-business owners: rising health care costs and complexity, Administration support for unions, poor economic policy (raising uncertainty), rising energy costs, more regulations and red tape (EPA, health care), and more tax complexity (including health care) and higher marginal tax rates.
Such policies impose higher implicit marginal tax rates on people who save and invest during their working years.
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Even there, though, higher marginal income-tax rates should not be the first choice.
This marginal tax rate is typically higher than capital gains tax rates.
The liberal claim that this means a tax cut for the wealthy is based entirely on the fact that marginal tax rates would decline, even though the loopholes primarily benefit higher-income taxpayers.
First, though lower income taxes are generally economically better than higher, no recession ever was kicked off primarily by an incremental change in marginal income tax rates.
It is a testament to the shallow nature of the national economic conversation that higher tax rates can be justified by reference to a fantasy a 91% marginal rate that hardly any top earners paid.
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