Progressive tax rates: The ‘rich’ and government revenue - Ahwatukee Foothills News: Opinion

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Progressive tax rates: The ‘rich’ and government revenue

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Posted: Tuesday, October 23, 2012 12:49 pm

Marx, Lenin and Engels “struck gold” with progressive tax rates. Progressive rates allow government to “hide the ball.” Those taxpayers in the lower tax brackets believe they pay little or no tax. So, they are ambivalent about government taxing the “rich.” In fact, the “poor” might believe that the “rich” need to pay more; unfortunately, that understanding is flawed.

Taxing the rich at higher rates is actually detrimental to those in the low tax brackets. Those who want to “tax the rich,” simply don’t have all the facts. The “rich” have to charge more for their services and products to cover the cost of their higher tax rates. Those costs are passed along to everyone, including the “poor.” So, taxing the rich just raises prices on everyone.

Tax the rich?

Now before you think poorly of the “rich,” you must understand that they have to charge more; their higher tax rates are a cost of doing business. Those costs have to be passed on, if the “rich” are to stay in business. And, if you think the “rich” are making more money than they should, you are still free to start your own competing business.

If a “rich” company charges too much for its goods and services, or does not pay its employees enough, you should be successful by starting your own competing business by paying your employees a bit more and selling your product or service for a bit less. Too bad government fails to support competition; doing so is the best and only equitable regulator of price and value.

Government revenue

The “Laffer Curve” predicts common sense about increasing governmental revenue. At first, as tax rates increase, so does government revenue. Then, as government continues to increase the tax rates, federal revenue begins to flatten out. Additional tax rate increases result in falling revenue. The curve works that way because at a zero tax rate, government has zero revenue.

But, as tax rates approach a level of confiscation, people won’t work. They discover that not working is better than working only to have government take it all. So, again government gets no revenue. The “trick” for government is to tax us to the point that revenue turns flat. At that point, government coffers are as full as possible.

Unfortunately, government sometimes tries to “kill the goose that laid the golden egg” by increasing taxes to even higher levels. Therefore, we should only elect honorable representatives who would limit tax rates only to a level to provide revenue sufficient for government to perform its enumerated constitutional powers. The welfare state can never create prosperity; individual effort and a free market is the best, if not the only way to create prosperity.

• Ahwatukee Foothills resident George R. Ferrin is a local attorney. For three years he was a civil structural engineer holding a Bachelor of Science in Civil Engineering from Arizona State University. For the last 30 years, he has practiced law as a commercial litigator focusing primarily on construction and engineering related cases.

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