There is a lot of hoop la going on in the US right now about taxing rich people. So I decided to do a little research. Let's start with Wikipedia's slim but informative description of tax rate. Basically it says that you are taxed one rate up to a certain income and a different rate on the remaining (marginal) income. What this means in the US now is that up to a certain level (I believe it's 373k for a married couple, a single person, and the head of a household) your income is taxed at one rate and above that it is taxed at another, generally higher rate. Now in the US tax is charged a different rate on different incomes. That is to say the first $8,375 is at 10% then from $8,375 to 34,000 for single people is charged at 15%. For example, if I made 30k in this year my effective tax rate would be ($3243.75 + $837.50 = $4081.25) 13.6%. Which is to say it is still advantageous to make more money and get into the next tax bracket, you will not be set back by a higher tax rate.
The very highest rate is referred to as the marginal tax rate. Now the proposed non-renewing of former tax rate cuts I believe will be affecting the "lower" tax rates down to $250,000 as well. Throughout US history it is has varied from 92% to a lowly 7%. At 92% that means that only 8% of the money earned above a certain level is actually kept by the person who earned it. Sounds pretty terrible right? Well, imagine a theoretical titan of industry in the last century. This particular individual owned a company worth tens of millions. He had the capability to give himself a huge bloated salary. However, instead of "losing" hundreds of thousands of dollars every year through taxes he simply reinvested it in his business. That entails spending more on his business. More equipment, more people. So a person could become a multimillionaire or even a billionaire while still having a salary of only a few hundred thousand dollars per year because of what he or she owned, such as a business. At the end of the day does it matter if your corporation owns the private jet and you are the only one that uses it or if you own it?
So this means that for rich business owners their investments are limited by their ability to run the business. Instead of investing in foreign corporations and commodities they must essentially invest in their company or companies. If they continue to give themselves huge salaries they will be giving much more to the government. Which is really not a bad thing is it?
So who is hurt by raising the marginal tax? It would in part be those titans of industry and business. Instead of tens of millions of dollars in income and bonuses that they are then able to invest as they please they would have much smaller incomes and that money would be reinvested in their company. Which means a whole lot less investing in foreign organizations from personal investors. They would be forced, from an investing point of view, to invest in themselves. Who else would the marginal tax increase hurt? People who do not own a large part of the company that pays them. This would probably apply to management people who make lots of money in large corporations yet do not own much of the corporation. One option is to reduce their salaries to avoid paying taxes. In that case these skilled managers would likely strike out on their own into a smaller company where they could own a significant share of the company. By being high up in a company the benefits (jets, company luxury cars, lodging, travel, boats) that they previously enjoyed from their personal salary would still be available to them simply owned by the corporation. On the other hand salaries could remain the same and they would simply play more taxes and take less money home. To be honest, that is taking a huge financial hit in many cases. For someone that is smart enough, or hires the right financial planners and advisors, maybe even career advisors, I am sure that his or her quality of life will not decrease because of a marginal tax increase.
Taking a tangent, an interesting lesson that many wealthy or powerful or political should not forget is the history of revolutions. A few examples of notable revolutions are the French Revolution. Another example is the Russian Revolution of 1917. A nice Thomas Jefferson quote states,
"The purpose of government is to enable the people of a nation to live in safety and happiness. Government exists for the interests of the governed, not for the governors."
Let us take a closer look at that. "The purpose of government is...", pretty self explanatory, then "... to enable..." that is not to give, or grant free of charge but to provide the opportunity. To me that means governments will tax the people. The quote follows, "...the people of a nation..." not the just people that have wealth. It follows, "...to live in safety and happiness." note that safety is mentioned first and I submit than happiness is the opposite of fear, whatever that fear may be. The second sentence is quite simple as well. A person can live without a government, although it may be difficult at times, but a government can not exist without people.
In other, very harsh and direct words, the government exists because we want it to exist. Our government does what we think are in our best interests. We may not always agree what is in our best interests. For example, why do people speed when they are driving? The point being that at the end of the day, or year, or career, we agree with the decisions that our government is making. If they are not making decisions for our well being what is their purpose?
I submit that a high marginal tax is a very good idea. By the world's standards living on more than $10 a day puts you in the top 20%. That's $3650 a year. So limiting the amount that a person can take home over $373,000 is not very limiting in the world context. If the marginal tax is going to put a cramp in people's style they might want to consider how they manage their finances.
Expedition Behavior rule #3: Do Not Complain. About anything. Ever. Notice that people who complain about money or a change in money either have some money or once had some money. People who are really in need complain about food and water. Thus I say, if I have something to tax, tax me!