Income tax rates don’t matter

Lots of discussion lately about income tax rates, pointing out that individuals reporting high incomes once were subject to marginal federal rates in excess of 90%, whereas today that rate never exceeds 35%.  And corporate incomes face federal tax rates of 39.3%, higher than most other countries. Various ignorant or deceptive interests use these figures to make all kinds of arguments, such as that America’s rich are undertaxed, or American corporations are overtaxed.

But the secret, that all lobbyists know, is that income tax rates don’t much matter.  When wealthy Americans were subject to 90% taxes, they didn’t really have to pay them.  Instead, accountants and lawyers and various other shysters put together all kinds of partnerships, trusts, and other mostly imaginary constructs, which were used to legally hide or redefine income into something else.  It was a bother and an expense, but way cheaper than paying taxes.

As for corporations, they have all kinds of manipulations available to reduce their taxes, as I discussed two months ago.  (If individuals figured their taxable income the way that corporations do, we could deduct all our expenses for food, clothing, medical treatment, and practically everything else).  If a few corporations appear to pay taxes in excess of the federal rate, it is due to state income taxes, local real estate taxes, other nonincome taxes, or special circumstances.

What brings all this to mind is this post, which provides two nice examples to illustrate my point.  Read them if you have the patience, but the basic point is that corporations are able to entice many very intelligent, experienced people to devise ways to avoid taxes that legislators intend (or at least pretend to intend) to impose.  They are opposed by many very intelligent, somewhat less experienced (and less well-compensated) people employed by IRS and other agencies, many of whom hope in the future to be employed by the corporations.  The net result of taxing incomes, especially corporate incomes, is that many of the most intelligent and creative people, who might be providing goods or services that people need or want, are instead playing word-games with each other.

I would appreciate if someone would explain to me how a land value tax could possibly waste 1/10th of the brainpower absorbed by this useless, destructive system.

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One Response to “Income tax rates don’t matter”

  1. Chuck says:

    Thanks for your post, I found it quite a good reminder that the privileged have resources the average person – the one Henry George fought for – cannot begin to attain until privilege is structurally removed.

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