Failed ideology of taxes

Maybe it is time to bring the 2012 State of the Union into the presidential election debates.

President Obama made the following statement about income taxes:

“If you make more than $1 million a year, you should not pay less than 30 percent in taxes. …. In fact, if you're earning a million dollars a year, you shouldn't get special tax subsidies or deductions.”

There is enough wiggle room in this statement for the president to shed responsibility, a common practice for him. He does not specifically say income taxes but he is clearly implying that. He does not say which subsidies or deductions but it is assumed that this applies again to income tax.

There are two problems with this proposal. Number one is the fact that taxes cannot be at 30% for anyone but salaried workers with W2 forms.  Nearly everyone else files a more complex return and will find many ways to reduce their adjusted gross income.

The following table shows effective tax collection based on the past 23 years. You will note that the highest year the highest marginal collected tax was 28%. The same is true in this chart when applied to individual income. The fact of the matter, which seems to be elusive for president Obama is that many times in this 23 years the marginal tax rate was much higher than 30% but it never resulted in an effective tax collection above 28% of the top income earners.

The second fact that seems to be ignored by the entire class-warfare-political party is that the more progressive you make income taxes the more volatile you make tax revenue. It's an obvious fact. The poor, students and teachers get hurt the worst.

So to summarize the consequence of the president's idea: it's an ideological fantasy and any effort to promote it will harm people whose income depends on government taxes.