Cutting off your nose to spite Obama

A friend of mine tells me that his son, the owner of a successful business, has vowed that if the Bush tax cuts are repealed, he will keep his income below $250,o00 in order to keep the government from getting any revenue from the increased rates.  I have heard of other people who say the same thing.

Consider the logic of this.  The current top tax rate is $350 on every $1,000 in income over and above $250,000 a year.   If the Bush tax cuts are allowed to lapse, the person will have to pay $396 for every additional $1,000 over and above $250,000.  So the son is saying that it is worthwhile to give up $604 in income in order to prevent the government from getting an additional $46.

It goes to show that not everybody in business makes economic decisions based on economic incentives.   What would this person have done during the Eisenhower years, when the top tax rate was (in theory) 91 percent or the Nixon years when it was (in theory) 70 percent?

I don’t, of course, believe in raising taxes for the sake of raising taxes.  I think taxes should be as low as possible compatible with meeting the normal and necessary expenses of government.

Click on Top Historical Tax Rate for a table of the top income tax rates year-by-year since 1913.

Tags: Income tax, Top income tax rate