Taxes are much higher than you think
Taking into account all taxes on earnings and consumer spending—including federal, state and local income taxes, Social Security and Medicare payroll taxes, excise taxes, and state and local sales taxes—Edward Prescott has shown (especially in the Quarterly Review of the Federal Reserve Bank of Minneapolis, 2004) that the U.S. average marginal effective tax rate is around 40%. This means that if the average worker earns $100 from additional output, he will be able to consume only an additional $60.
Research by others (including Lee Ohanian, Andrea Raffo and Richard Rogerson in the Journal of Monetary Economics, 2008, and Edward Prescott in the American Economic Review, 2002) indicates that raising tax rates further will significantly reduce U.S. economic activity and by implication will increase tax revenues only a little. …
The economy now faces two serious risks: the risk of higher marginal tax rates that will depress the number of hours of work, and the risk of continuing policies such as Dodd-Frank, bailouts, and subsidies to specific industries and technologies that depress productivity growth by protecting inefficient producers and restricting the flow of resources to the most productive users.
If these two risks are realized, the U.S. will face a much more serious problem than a 2013 recession. It will face a permanent and growing decline in relative living standards.
Blowback
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Yeah, that’s not a bug, it’s a feature.
John_Locke on December 12, 2012 at 10:57 AM
Music to Obama’s ears.
The Rogue Tomato on December 12, 2012 at 11:01 AM
There is also all these stupid fees they tag add to electronics purchases. It’s all a racket.
Blake on December 12, 2012 at 11:07 AM
in Russia the income tax is 13%
ChunkyLover on December 12, 2012 at 11:07 AM
Try to read your phone bill…look at all the “taxes” and fees, including the one which give free phones to the “unemployed”.
right2bright on December 12, 2012 at 11:09 AM
My contention has always been that the cost of gas (for instance) is not $4 a gallon, but $8 a gallon.
You have to earn $8 to spend $4 dollars, that’s what people miss.
When the price went from $2 to $4, it wasn’t a $2 increase, it was a $4 dollar increase in what you had to earn to buy that gallon of gas.
People don’t get math, and if they did, and if everything was spelled out that way, taxes would be lower, gov. would be smaller…
So when they say something goes up only 3%, it actually costs you 6%…if bread doubles in price, you have to quadruple your income to pay for that increase.
When they say inflation is just 4%…it’s 8% to you.
right2bright on December 12, 2012 at 11:14 AM
For years, we on the right have said how we are “following” Europe’s lead, or “slowly becoming” Europe, or that we’re “right behind” Europe.
Nope. I think the depressing realization that has come upon us on the right is that there is no coming transformation…
We ARE Europe.
blatantblue on December 12, 2012 at 11:14 AM
they didn’t even mention corporate taxes that are passed on to consumers and employees of corporations. that is a hidden tax right there.
Donald Draper on December 12, 2012 at 11:15 AM
No they’re not. And my taxes are higher than that.
besser tot als rot on December 12, 2012 at 11:21 AM
And that’s not even counting the “tax” of inflation.
People want the European sugar daddy state then they also get the European economic stagnation and lower standard of living.
gwelf on December 12, 2012 at 11:21 AM
I had an article from the SFGate a few days ago about giving free mobile phones w/plan to THE HOMELESS.
tom daschle concerned on December 12, 2012 at 11:24 AM
Hey, does the economy know this?
High taxes spur economic growth. In fact, the higher the taxes the more the economy grows. Someone please tell the economy.
darwin on December 12, 2012 at 11:27 AM
No!.. No! ..No! The rules of reality don’t mean anything anymore – we’re in the Age of Obama – were people can be taxed and it doesn’t change their behavior.
/Lunatic Leftists.
Galt2009 on December 12, 2012 at 11:31 AM
I’ve had esteemed members of the Democratic Socialist Worker’s party tell me that if you tax someone twice as much they will work twice as much.
This country has to get serious in stocking up on padded rooms and strait jackets..
Galt2009 on December 12, 2012 at 11:33 AM
Forward!
visions on December 12, 2012 at 11:36 AM
Where were all these articles and letters from economists prior to the election? None of this is news. It doesn’t matter anymore, because this administration does not care what its policies will do to the economy, which is not news either.
Night Owl on December 12, 2012 at 11:38 AM
Remember, if you add up aaaallllll the taxes you pay at the end of the year, including “hidden” taxes like gas taxes, taxes that are “passed” along to consumers in food, services, etc. and they all add up to 51% (or more) of your income….you are no longer working for yourself or your family. You are working for the government. Your family gets the leftovers.
All those sacrifices you’ve made, all the time you spend away from your family busting your butt, all the time in school (including debt), etc……you are not doing that for yourself or your family. You are primarily doing it for the government.
So, with that in mind, recall that we are running trllion-per-year deficits.
Conclusion: the government is confiscating 51% of the prime of your life and they are squandering it. All the sacrifices you’ve made have been literally for nothing.
visions on December 12, 2012 at 11:42 AM
They WILL work harder — at avoiding taxes. Liberals think they can legislate away human behavior, but they can’t. As long as taxes are in any way avoidable, people will find a way to avoid them. People want to keep the money they have earned, and they instinctively understand that they can use their money more wisely than government can.
The only way to make sure everyone pays taxes and eliminate the drag on the economy of tax avoidance is to eliminate individual and corporate income taxes and go to a VAT.
rockmom on December 12, 2012 at 11:48 AM
BTW I just found out that my small raise for 2013 will be entirely eaten up by the return to the normal Social Security tax and the increase in the SS earnings cap. Just peachy.
rockmom on December 12, 2012 at 11:52 AM
My favorite of all the “prey on the weak-minded” accounting tricks? The Social Security tax. People only see half of it on their paycheck; and they’re told to believe the other half is somehow paid by the evil corporation that employs them.
No. Of course it — along with every other expense the company is forced to pay on your behalf — all comes out of money you’d otherwise be paid, feeb.
logis on December 12, 2012 at 11:58 AM
Who do you think is going to end up paying all those deficits, plus interest… Congressmen? Or maybe Obama will cover it out of his stash?
Nope. If you want the REAL marginal tax rate, take all the current taxes and add about 20% for the deficit “investment” we’re all making. And remember, that will come OFF THE TOP. So, as the government continues its exponential growth and the private sector continues to collapse, it’s entirely possible that the total effective tax rate could eventually come out to more than 100%.
But it probably won’t quite get to that point. Before too long this whole damned thing is going to collapse like a house of cards in a hurricane. Then we’ll go to the Third-World system; where the government doesn’t take “taxes” from citizens; it just owns everything and doles out to you what it thinks you deserve.
logis on December 12, 2012 at 12:10 PM
DUH!
Been saying that for a very long time. Heck, I always point out buying a used car, which you get taxed for buying AND the seller also gets taxed from the income of said sale.
watertown on December 12, 2012 at 12:22 PM
It’s time for tax reform.
I don’t want to hear when republicans win the senate again..no matter when that is, that the government is counting on that revenue and that republicans will have to PAY FOR it if they change the tax rates.
I want lower, simpler tax rates and rules.
The end of the Obama tax rebate on social security taxes has to end. All these people do not know how much money is being charged to them and lost, not in a LockBox, and won’t know unless the rates go back to what a Democrat CONGRESS set them at.
SSI (disability) and other programs have to end. Let them be optional if you choose to pay in. SSI is misused as a welfare program of last resort. Your SS rates should not be based on people getting exceptions that are not 67 years old yet.
Walk it over the cliff Obama, it will be terrible, and we get the blame. And if a deal can be worked out in time, it will be terrible and we conservatives will get the blame.
It needs fixing, lets go directly there, do not pass go, do NOT collect $200.
Fleuries on December 12, 2012 at 12:33 PM
The once freest and prosperous land is aiming for 3rd world status, volens. She deserves it.
The majority of her people are now fools.
Schadenfreude on December 12, 2012 at 12:52 PM
Courtesy RWM
Schadenfreude on December 12, 2012 at 12:53 PM