01/19/2013 Tax Rate Summary (for Newsmax)

Thanks to Bill Spetrino for mentioning this article on Newsmax: http://www.moneynews.com/BillSpetrino/Clontz-tax-rates-revenue/2013/01/18/id/472009

This is a summary of the effect of tax rates on government revenues...

When it comes to taxes, there is only one difference between conservatives and liberals.

They both want to raise as much money as possible.

They even have a similar tax rate target: 35%.

The difference is that conservatives want a 35% maximum tax rate, and liberals want a 35% average tax rate.  Now, in a progressive tax system, that’s a big difference.

Here’s how it works: 

0% to 35% brackets gives an average of 20% (the conservative target).

0% to 65% brackets gives an average of 35% (the liberal target).

So, who’s right?  Which raises as much money for the government as possible?

Well, the government’s been tinkering with rates between 28% and 94% for over 70 years, and it’s a simple matter of just looking at what happened during that long experiment.  Since we’ve been the guinea pigs, we might want to see how it worked out.

Here’s what we need to look at:

> United States population
> Inflation adjusted tax revenues
> Government’s percent  of gross national product (for average tax rates)
> A list of the legislated tax brackets (for maximum tax rates)
> Revenues per capita (to see how well those rates worked)

(A full table is available here: http://market-mousetrap.blogspot.com/2013/01/01152013-source-data_2926.html)

We then have two questions:

> What maximum tax rate creates the most revenue per capita; 35% or 65%?
> What average tax rate creates the most revenue per capita; 20% or 35%?

The good news is that the Republicans are right.  The government gets the most money possible when the maximum tax rate is 35%, and the average is 20%.

The bad news is that the President just raised those rates, and government revenue should go down by about 14%.

In other words, they didn’t raise revenue, they just threw it away.