Taxes and the US Economy

In the article “America Needs an Alternative Maximum Tax” John Cochrane,professor of finance at the University of Chicago Booth School of Business in the April 15, 2013 issue of the Wall Street Journal argued that the US needs a Alternative Maximum Tax. Within the article he also brings up another point about taxation, which will be summed up here in the interest of short space allotted.  The modern political debate on taxes finds law makers unwilling to give up programs and funding and so they are sorely tempted to increase taxes. “Make all pay their fair share!”, is often their cry. Certainly in justice we should all pay taxes, but how much is often the question. When does the percentage of taxation become over burdening? Those in Europe, for example many of the northern European countries find income tax to be greater than 50% of their incomes. They argue that in return they receive better services. Yet if for example we had a 100% income tax rate, then no one would work—there would be no incentive—and we would all expect to have services from the now bankrupt government. Should someone making more than a certain amount be forced to pay an exuberant amount of taxes as “their fair share”? It should be remembered that on top of this percentage there is of course all the other taxes small and large that must be paid. Of course there is always the classic argument that if the rich are overtaxed then there will be no economic growth. Of course the AMT is slowing creeping in and doing exactly this, but not just to the rich. Soon those who are making $100,000 are becoming eligible to have the AMT applied to them. Yet, what if the AMT strangles these households (as it is not adjusted to inflation)? When will they start to be paying far more than “their fair share”? A socialized America will be slow to take care.