I keep hearing nonsense from the anti-tax-increase crowd in Congress, claiming that any increase in the top marginal tax rate for anybody will cost jobs.

     I beg to differ.

     For a couple of reasons:

     First; the way they express it, it sounds like the tax increase wanted by the President and the Democrats is to be levied on the entire income of anybody making more than $250.000.00 per year.

     If that were the case, the tax increase opponants would be correct; a small business grossing, say, $500,000 per year would be hard pressed to pay an additional $15,000.00-$20,000.00 in taxes, and would very possibly have to go out of business, and fire all of its employees.

     But that ain't the case. The proposal is to increase the tax on the top marginal rate. That is, increase the rate on net income in excess of $250,000.00. But that business with gross receipts of $500,000.00 probably has total expenses of more than $400,000.00, salaries, wages, and benefits included. That leaves less than $100,000.00 in profits. That's not going to be affected by the proposed increase.

     Incidentally, did you know that corporations pay a lower tax rate than people do? You don't have to take my word for it, you can check it for yourself at the IRS website (www.irs.gov). That's why a lot of small business owners pay themselves very low salaries, and have many of their expenses paid by their businesses.

     Second; it's not only small businesses that will be subject to the increase in the top marginal rate, so will salaried employees.

     There are many, perhaps hundreds, of large corporations that pay their CEOs and other top executives millions of dollars a year in salaries and other forms of taxable income. The taxable incomes of those executives in excess of $250,000.00 would be subject to the increase in the top marginal rate. Of course, when one has that big an income, one has tremendous deductions—it's all in the tax code. Some of those people (hundreds of them?) pay little or nothing in taxes. That's why there's the alternate minimum tax. As an example, Warren E. Buffett, one of the richest people in the world, has complained at the unfairness of the fact that he pays a lower tax rate than his secretary does!

     Excuse me, I got side-tracked there. Back to my main point.

     Tell me now, all you "job killer" protesters, Let's say Corporation Alfa is paying its CEO and other top executives a total of $20 million a year. Is Corporation Alfa really going to fire people if those executives are subject to an additional 3%-4% in their top marginal tax rate?

     Get real.

     Increasing the top marginal rate is highly unlikely to cost any jobs.

     A few simple facts:

  • When President Clinton raised the top marginal rate to the level currently proposed, job creation increased, and the national deficit got wiped out.

  • The top marginal rate under President Reagan was 40%.

  • The top marginal rate under President Nixon was 70%

  • The top marginal rate under President Eisenhower was 91%.

         You'll note that all three of those higher taxing presidents were Republicans.

         For what it's worth, the US economy had one of its greatest growth periods during the Eisenhower administration.

         An increase in the top marginal rate is a "job killer"? I don't think so.  

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