Wednesday, January 20, 2010

Tax the Rich...

“Tax the rich!” is the frequent rallying cry of the liberal left.  Somehow, in a way I've never fathomed, it seems more fair to them to take a higher percentage of income as tax from people who earn more.  This is styled as a “progressive” tax, because the income tax rate gets progressively higher as your earnings go up. 

The progressive income tax is certainly not unique to America, but we have put our own perverse twists on it.  The twists that have affected me personally include not only the progressively higher tax rates as my income has grown over the years, but (in recent years) the elimination of tax credits.  For example, our tax code has long had a tax credit for the interest paid on home mortgages.  In more recent years, that tax credit is removed for people whose income crosses a certain threshold.  Removing a tax credit is effectively the same thing as paying a higher tax rate.  An inverse example is the so-called “Earned Income Tax Credit”.  With this glorious example of progressive income redistribution, people who make below a certain threshold not only do not pay any income tax at all – we send them a check!   This used to be called welfare.

We have a lot of things like this in our tax code.  The net effect of them is to steepen the progressivity of our tax code.  When you earn more income, you pay a lot higher tax rate to the thieves federal government.

Here's an interesting real-world story that illustrates the ultimate effect of such progressivity...

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