Monday, November 17, 2008

The rich aren't paying their fair share?

I just updated this chart and although I know that campaign season has passed, this issue is still extremely important. The notion that the rich aren't paying their fair share of taxes is simply untrue at best, and blatantly misleading at worst. The top 10% of income earners in 2006 (latest data available) paid 70% of federal income taxes, the top 5% paid 60%, and the top 1% paid fully 40%. The Tax Foundation is chock full of this type of information.

If ever there was a chart that proves that the Laffer Curve works, this is it. Over the period covered by this chart, the top marginal rate on upper income tax earners dropped in half, from 70% in 1980 to 35% today, yet the share of total taxes paid by this group has gone up by 40%. As the old saying goes, "tax something less and you will get more of it." Lower tax rates reduce the incentive to avoid taxes, while also increasing the incentives to work harder, to invest, and to take risk. It's a win-win for all concerned. Raising tax rates on the rich risks reversing this virtuous process, akin to killing the goose that lays the golden egg.

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