From: jwh@citi.umich.edu (Jim Howe)
Subject: Re: VOTE, BABY, VOTE!
Date: Fri, 06 Nov 92 10:33:41 EST
Organization: IFS Project, University of Michigan
Distribution: usa
Reply-To: jwh@citi.umich.edu

In article <1992Nov6.093340.7001@RedBrick.COM>, jfr@RedBrick.COM () writes:
|> In article <1992Nov06.031958.61102@watson.ibm.com> yozzo@watson.ibm.com (Ralph Yozzo) writes:
|> >In article <Bx96p8.AKL@dptspd.sat.datapoint.com> dscharfe@dptspd.sat.datapoint.com (David Scharfe) writes:
|> >>The biggest reason I hate income tax is that when you invest,
|> >>you are taxed again on your money.  You _already_paid_your_taxes_
|> >>when you made the money in the first place; I cannot find any
|> >>reasonable justification for paying twice.  Please enlighten me.
|> 
|>   Okay.  You are all mixed up.  When you earn your money, you are taxed
|>   on it.  As far as I can tell, you will NEVER EVER EVER again pay tax
|>   on those same dollars EXCEPT in the case of sales tax assessed on the
|>   purchase of goods with those dollars.  So the sales tax is indeed a
|>   secondary tax applied on top of taxes already paid.
|> 

Or in the case where inflationary gains are taxed.  Since the basis
for calculating a gain is not indexable and we have had some level
of inflation for the past umpteen years, it is reasonable to say
that any tax on an inflationary gain *is* a double tax.
|> 
|>   Since I am on a roll here, I want to disabuse certain people of
|>   another notion... That is, that if Clinton raises taxes on people
|>   making over $200,000 by increasing the marginal tax rate to
|>   50%, that everyone will want to stop their salaries at $199,999.
|>   Why does everyone seem to think this?

Noone that I know of would argue that with an increased marginal rate
on those earning over $200,000 would imply that everyone would stop
their salaries at $199,999.  What most people will argue is that
raising the taxes will cause people to shelter more income.  Already
in yesterdays WSJ, there was an article on what people should do
now in anticipation of tax increases.  Why do you think tax advisors
exist?  Why do you think that tax free investments exist?  It is
driven by a desire to keep your taxes as low as possible.  Raising
tax rates simply encourages people to find ways to shelter their
income.  Also, marginal rates *do* discourage additional work.
At some point a person is going to decide that he would rather
spend his time doing something else than working additional hours
for reduced pay.  Think about a person who charges by the hour.
At one income level is real pay is his hourly rate minus the tax.
If he works additional hours, such that his income puts him in
the next marginal bracket, he has suddenly taken an hourly pay
cut.  If you are already living comfortably, at some tax rate
you will decide that your time is worth more than you will get
by working the additional hour, or taking the additional time
to research investments, etc.  You will simply say screw it, 
I would rather go play golf, go skiing, etc.  An hour spent
generating income is an hour not spent doing something you
may enjoy more.  The higher the cost of generating income, the
more likely you are to forgo that activity and do something
else.

|>   [...]
|>   Taxing the rich (at
|>   least under our current system) just pinches them, and makes them
|>   try to be that much more aggresive about making high returns.
|>   

No, it just encourages them to seek shelter.


James W. Howe                  internet: jwh@citi.umich.edu
University of Michigan             uucp: uunet!mailrus!citi.umich.edu!jwh
Ann Arbor, MI   48103-4943         
Newsgroups: alt.politics.clinton,alt.president.clinton