Sorry, didn’t check your numbers, as I was just commenting on methodology.

The latter scenario is correct, i.e. 15% on first segment of income. That’s why maximizing your deductions is so important because it reduces the amount that’s taxed at the highest marginal rate. Tax credits, if they are available, are even better as they are a direct reduction of tax on a one for one basis.

I actually voted for John McCain in the last election due to my opposition of Barack Obama’s pro-tax agenda. However, I respect the man for his stubbornness in supporting unfavorable tax policies to bolster his promotion of social programs that he honestly believes is in the best interest of the American people. Respect doesn’t necessarily mean I agree or support.

Obviously, a very complex issue and I accept your points and beg your pardon for not being more specific and careful about my statements. I am thinking of the question in terms of government policy relative to a free market policy. I want someone to prove to me that government investment is equal to or better than what a free market delivers.

Lets say a government opens a new park. Everybody says what a great thing to do! Now, the park has been open 5 years and been lightly attended and has been running at an operating loss every year. A politician will come to his/her constituency and say what a great thing we have here, we need to raise taxes to cover this loss i.e. government is largely, not totally, impervious to market signals. Now, contrast that with a free-marketeer who opens a shop and is suffering losses. The market is sending a message to that owner that his wares are undesirable. He cannot go and raise taxes, instead he must make changes or be out of business which would free up the space for a more productive venture. I believe truly free markets, not the quasi-free markets we have today, will maximize employment and income relative to a government deciding where to invest capital.

Please think of taxation as a redistribution of wealth, because that is exactly what it is. So, in a sense, any tax is a “punitive” tax that forces private investors to seek a higher rate of return than they otherwise would. Since governments don’t earn their revenue, they cannot possibly “invest” this money better than the private sector (I already know you will try to debunk that statement). Governments can and will distort markets beyond any semblance of a free market, just look at our most recent sub prime debacle and the tax-advantaged status real estate has held for many decades. Just a warning to beware of politicians saying “look what the free market has done”, when in fact the government policies of Fannie Mae and Freddie Mac are largely to blame for the distortions in that market. Lots of other blame to go around there too as I’m sure you are aware.

I ask you to relate the AIG bonus /Exxon windfall profits situations to your company, where the government wanted to confiscate bonuses/earnings because they deemed them too high. What’s to keep the government from saying to you “hey, I’ve helped you stay in business and I think your profits are too high given you are doing a public service”. Sounds far fetched, but it is a thin line from AIG/Exxon to the small businessman. Governments do crazy things in a crisis, all in the name of the “public good” of course.

Additionally, you railed on “punitive tax rates” killing private sector job creation. Obviously, tax rates are a direct function of government policy/law.

I perceive a few issues in both assertions.

I can easily connect government policy to job creation, in many, many ways, both positively and negatively (obviously, a negative influence on job creation implies stifling or even destruction of jobs). In fact, you yourself tried to do the latter with your statements about “punitive” tax rates.

First, please define what constitutes “punitive tax rates.” Is this a little bit like defining what is “obscene,” i.e., you may not be able to define it, but you know it when you see it? It’s easy to throw pejorative words around in the context of espousing your views, but it’s a little more difficult to be specific, no?

Second, as far as the influences of government policy on creation of jobs, how many examples do you want to see? Macro governmental policy has historically had HUGE impacts on job creation (or destruction). I won’t even address the New Deal…too obvious. But what about America’s decisions to enter (or start) any armed conflict, rightly or wrongly? Look at WWII, or Viet Nam, or Iraq for examples of the impacts on the GDP and hence the underlying industries that support the war efforts.

Government spending on infrastructure, from the local all the way up to the federal levels, has tremendous impacts on employment levels in associated industries. I know this to be fact, as I am an engineer engaged in the design of public infrastructure elements at virtually all levels. It may take awhile on the national level, but I can tell you without a doubt that aggressive local infrastructure investment by our local government and a major local state University have kept my company in business over the last couple of years, and has provided work for contractors throughout our area, while addressing significant public needs in the process.

Government can impact trends in employment through legislation addressing energy policy. If you have not seen what’s happening in the panhandle of Texas, down through the Sweetwater area into the northwestern fringes of the Hill Country, then you have not seen a very clear marker.

There are so many examples, it boggles the mind that anyone would not be able to connect government policy to potential job creation (and yes, even job destruction).

But to say the government has no effect is simply not factual in any sense.

Good question, its both! I don’t belive they are mutually exclusive. I understand where I might have confused you and not been so clear, however, I believe they are congruent thoughts. Let me try to explain. Government policy most assuredly does have an effect on willingness/ability for the private sector to create jobs, but ask yourself, does it maximize job creation? And in that vein, punitive taxation only serves to further minimize job creation from an already non-maximum starting point. I argue that government policy only affects job creation to the extent that the private sector can overcome the hurdles placed in front of it by government. And actual government jobs are paid through taxation, and by definition, are sub-maximum to a free-market solution.

On the one hand, you say punitive taxation by the government will stifle job creation. On the other hand, you ridicule those who say government policy can have any effect on job creation.

So….which is it?

Phil, there is no “paradox.” You are confusing the effects of a stepped bracket distributed across the total taxable income amount with a “sliding scale” system, basically. Every dollar beyond the set maximum bracket limits IS most assuredly being taxed directly at the next higher bracket rate. You are doing nothing more than averaging the final total tax bill across the entire total of taxable income. I could argue that every additional dollar taxed at the highest marginal tax rate applicable also increases the tax rate for the first dollar taxed. Because it does!

Semantics.

While I think we understand each other, let me carry your argument to an extreme to illustrate its failure and that there is no paradox. Lets say, you have a graduated tax system similar to the IRS, but tax rates of 15% on first 25k of income, 50% on next 25k, and 100% on any remainder of income. So, with your line of thinking, the person that earns exactly 50k in taxable income has a 16.25k tax liability for only a 32.5% average tax rate. Now, lets say an ingnorant person with no knowledge of the tax code, earns 60k in taxable income, his tax liability is now 42.5k for an average tax rate of 70.8%. Now, was this person’s last dollar taxed at 70.8% or 100%? This person has no incentive to earn any income beyond 50k because of the punitive marginal rate. THIS MUST BE UNDERSTOOD BY EVERYONE. EVENTUALLY GOVERNMENTS WILL TAX THE INCENTIVES OF PRIVATE SECTOR PRODUCTION OUT OF THE SYSTEM. A GOVERNMENT’S VERY LIFEBLOOD IS PRIVATE PRODUCTION. SIMILAR TO A CANCER THAT EVENTUALLY KILLS ITS HOST, TAXATION IS THE CANCER THAT KILLS THE HOST OF PRIVATE ENTERPRISE.(sorry about the CAPS) Those people clammoring for tax the rich at punitive rates don’t understand economics and what drives investment and job creation. I had to laugh at the reaction to the elections the other day as I heard over and over on the media that government “must do something about the jobs situation”. That people have connected governement policy to job creation truly shows how poor our education system is and how far we need to go as a country.