So let’s talk about marginal tax rates, especially with the discussion going on now. Note this is a hypothetical example with simple numbers to make it easy to understand and explain.
Let’s say Bubba earns $10 million dollars a year. There are two tax rates: 20% for all income up to $1 million dollars, and 70% for everything over $1 million. Bubba’s first million is taxed at 20%. But the remaining $9 million is taxed at 70%, which means he is paying $6.3 million in taxes on that income. Adding that to the taxes he pays at the lower rate means he is paying 65% of his income in taxes.
Leftists love to cite “marginal tax rates” and claim conservatives do not understand them, as if we are saying that all income for the top bracket is taxed at 70%. But claiming Bubba’s tax rate is “nowhere near 70%” is simply dishonest, as I demonstrated above. Furthermore, the more Bubba makes, the closer his total tax bill gets to 70%.
I do not believe taxation itself is theft. Scripture makes it clear that we are to pay our taxes and that the civil magistrate has the rightful authority to levy and collect taxes. But there comes a point where taxation is theft, and taking 70% of every dollar someone earns is theft. And it is theft even if the theft is “only” on income over the highest tax threshold.
Historical perspective is also important. The top income bracket of 90% for married couples in 1960 was $400,000, which would be $3.36 million today. But no one ever paid that rate because there were many more ways to shelter income from taxation back then than there are today. The effective tax rate was much lower, as you can see from a simple Google search.
Note, of course, that the above example only includes the federal income tax rate itself and not all other taxes. We have property tax, sales tax, state income tax, cigarette tax, alcohol tax and many more.
Let’s get real here. An exorbitant tax rate on “the rich” is a populist talking point, but the rich already pay the lion’s share of taxes. The top 5% pay about 60% of all income taxes. If we’re going to have new massive government programs, higher taxes on “the rich” will not get the job done. We are going to need a significant tax increase on the middle class, or a much higher budget deficit, or most likely both. The politicians pretending a 70% top rate is a panacea are being dishonest.