Henderson's Case Against Higher Taxes
By David Henderson
A number of Democratic politicians—and some economists including Paul Krugman—have recently advocated substantially higher income tax rates on high-income Americans. The current top federal tax rate on income is 37 percent for married people filing jointly, and it applies to all taxable income over $612,350. The highest state income tax rate in the United States is in California, where it is 13.3 percent on taxable income over $1 million. Thus, the highest-income people in California lose over half of their incremental income to the government. That the politicians favor higher tax rates is not surprising; that some economists do and that one particular economist is making such a bad case for higher tax rates is somewhat surprising.
Economists, whatever their ideology, tend to oppose high marginal tax rates for one very good economic reason: what they call deadweight loss. Moreover, a substantial minority of economists, including myself, opposes high marginal tax rates on philosophical grounds. Also interesting is that the majority of Americans, if they understood how high are the tax rates that high-income Americans pay, would favor substantially cutting tax rates on the top earners.
These are the opening paragraphs of my article on the Hoover Institution’s Defining Ideas site yesterday. The article is titled “The Case Against Higher Tax Rates.”
And here are my two favorite paragraphs, which I’m grateful that the editor kept:
Notice something else that Krugman seems to believe: rich people literally don’t count. He writes, “[T]he social benefit from getting high-income individuals to work a bit harder is the tax revenue generated by that extra effort.” That’s true only if rich people aren’t part of society. And in case you thought Krugman was just being careless, look at another line above: “[W]hen taxing the rich, all we should care about is how much revenue we raise.” He seems to regard “the rich” as cattle to be raised and exploited. That’s a very negative view of humanity.
It’s also a strange view. Krugman, who is quite rich whether measured by income or wealth, is excluding himself from society. Some might say that I care more about Paul Krugman than Paul Krugman does.
Even noted activist Al Sharpton thought the rich should be taxed less. In a 2004 interview with John Stossel, Sharpton said that the rich should pay their fair share of taxes. Stossel asked him what percent of total federal income taxes the rich should pay. Sharpton’s answer: at least 15 percent. At the time, noted Stossel, they paid 34 percent of all federal income taxes. All the rich people I know, except for Paul Krugman, would take Sharpton’s deal in a New York minute.
Read the whole thing, or, as Tyler Cowen always says, “Do read the whole thing.”