And while I’m on the subject of tax reform, is this statement of Steve Forbes’s true?
Ronald Reagan, John Kennedy, Jack Kemp and other wise tax cutters of the past grasped the significant fact that the marginal tax rate is what matters most to individuals and businesses in their decision making on whether to work to earn more or where to invest.
The emphasis is mine. It could be true of businesses and in the rarefied circles in which Mr. Forbes socializes but I think that for most people decisions are made based on cash-on-hand and, generally speaking, they can’t just to decide to increase their incomes by working harder or longer. I earn the same whether I work 40 hours a week or 80 hours a week. Unless I moonlight, of course, and that could get me into big trouble with my employer. Most hourly employees’ hours are determined by their employers and most salaried employees’ wages are fixed.
I haven’t bothered to check the statistics but my guess is that all but a very small percentage of workers are either salaried or hourly. Receiving a sizeable income while being neither a salaried nor hourly worker is practically the definition of being upper class.
Hold on a second.
A mid-level manager makes the same for his 80 hour work week as he does a 40 hour work week except………………the salary structures for those willing to work 80 hours are different than for those who go home at 5pm. And that doesn’t even contemplate the investment in the future. I know. They are much less likely to do so when half their marginal dollar goes to government.
Secondly, those working in places like steel mills or auto factories have, de facto, huge marginal return to extra hours: time and a half, or double time. Just try to get them to work without that. Benefits matter at the margin.
Most importantly, your point, it is simply a fact that a small portion of the population is responsible for real live investment, be they a person, business or the same. That’s not new. This is why the Democrat position is backwards in their criticism of “tax cuts for the rich.” Its just politics. You can spur demand by cutting payroll taxes, or by cutting someone’s tax bill from $1400 to $1200. You won’t get any investment.
Maybe in some places. Not in others. In yet other places working far beyond the 40 hours is simply expected. Back in the day, the way many got raises was not by working harder or longer but by changing jobs. That’s a lot harder in a tight labor market.
In most large companies other than for C level employees pay is set not on performance but in relation to other people whom you may resemble only superficially.
I bet you ask any middle income person and the vast majority will have no idea what their marginal rate is. I follow tax policy a lot more closely than average Americans and even I’m not sure until Intuit tells me each Spring.
For most Americans the tax system is a complete black box.
The key point is that the claim is either false or poor diction. He wrote:
If he meant “what matters most to the very rich”, I would not have peeped but that’s not what he wrote.
It probably isn’t true even of most of the top 1% of income earners, most of whose income is salary just like mine. It might be true of the top .2% of income earners but not many more than that.
“Back in the day, the way many got raises was not by working harder or longer but by changing jobs.”
Indeed, and had I followed that model I might be a high paid Chief Metallurgist at The Acme Tin Bending Co. But not wealthy.
“In most large companies other than for C level employees pay is set not on performance but in relation to other people whom you may resemble only superficially.”
Once again, our experiences differ. During the period I was in large corporate, thankfully short, I did not find this to be the case. Maybe had I stayed at Inland Steel I would have witnessed that. At the bank, nope. It was clear who produced, and who got paid. (A bank!) Once out of large corporate, NFW.
Suppose I’m Joe Average. I make a thousand bucks a week, and they deduct two to three hundred each week from the check to pay for Social Security and healthcare and retirement. Call it two fifty. I’ve got a mortgage and kids who need clothes when the school year starts and I need some roof work done … I think I should find a better paying job. Maybe I can find something paying 60 thousand, so I’d have 1200 a week, and they’d take … call it 300.
Do I actually seek out tax tables to get a better grasp on what my deductions would be? I don’t think so. Should I try to figure out just what annual income will really leave me 900 a week take home? That’s too much work, and to be honest, it all sounds a bit complicated, doesn’t it?
I don’t think Joe Average spends much time evaluating marginal things. I do think he’s … average.
Only tangentially related, but interesting piece looking at where we get our inventors. Oddly enough, mostly from high tax states. Who knew Minneapolis was such a center of innovation?
https://promarket.org/americas-lost-einsteins-dealing-blow-innovation/
Steve