The power for tax is the power to destroy. Even Pharaoh, 3000 years ago, realized this wise saying. Unfortunately, it seems to have been forgotten by several more influential modern economists. But what is destroyed? What is destroyed is economic incentives for business formation and growth.
With Congress and White House speaks sporadically about the stimulus package to spur economic growth, it is important to distinguish what tax policies will work and what is a normal political and business puff (increasing expenditure) disguised as an economic stimulus package. By remembering this, you can say that this article is a short primer about understanding the growth aspects of tax policy.
Taxes, spoke widely, can be categorized into two types of titles – tax on capital and taxes on labor. Because this article will deal with taxes on income, capital taxation will be identified with body income tax. Likewise, taxes on labor are equivalent to personal income tax schedules. Now the question of sixty-four thousand dollars. Which is more important in helping to stimulate economic growth and business?
As President Lincoln stated in one of the initial speeches as president, the tax on labor is more important than taxes on capital. Why? Economic growth is driven by the establishment of a new new business. Or, in other ways – the economy is pushed quickly when everyone wants to be a business owner. When entrepreneurs (risk takers) start a company, their business income tax was originally reported on the private income tax schedule. When businesses grow, owners can enter and submit using the company’s tax rates. (As a reminder, when individuals start a business, they hire people. Business with less than 100 employees is responsible for 75% of the growth of new jobs clean. The establishment of a new new business must be a tax policy goal designed to stimulate economic growth.)
Because taxes on labor are more important than taxes on capital, marginal income tax rates for labor must be less than the top corporate level. At present, the top company tax rate is 35%, while the tax rate for workers is around 35%. If the policy maker seriously provides an incentive to stimulate dynamic business growth, the upper personal income tax rate must be reduced to less than 35%. To provide real Fillip to economic growth, the upper personal income tax rate must be significantly below 35%. It’s no coincidence that Regan’s president, in both terms, reduces the top individual level to 28%. This is the right level that does not include any reduction or nonsense phaseout that has a bad effect of increasing marginal levels.
Economic policy makers, whether they are in an administration or legislative position, such as taking the least resistance pathway – similar to electrons in a circuit. Their roads that are at least resistant to stimulating economic growth are increasing expenses. It doesn’t work! (If yes, many of Europe’s main economy will boom now. Instead they are in Doghouse for the past ten years.) Money to increase spending they only suck-out of the private sector. The clean effect is zero.
Providing financial incentives for individuals to take business risk with significant reduction and immediately in the individual marginal income tax rate is the best way to promote sustainable and vibrant economic growth.