Do you even know your net income tax rate?
This has to be seen to be believed…
Today, NYT financial reporter James B. Stewart — who also has a law degree and is a professor of business journalism at Columbia University Graduate School of Journalism — wrote a piece in which he admitted that he hadn’t known his net income taxation level, until now…
After toting up federal, state and NYC income taxes — never mind sales taxes — he determined that these totaled 74% of his taxable income!
A few quick observations:
1. This is a near-perfect example of what one could call “price-disguising” — which is rampant in Western society and clearly is not adequately taken into account by people who extol the glories of free markets. In plain English, the combination of high and complex taxation tends to prevent people (even well educated, financially savvy people like Stewart) from seeing the true cost of their expenditures. They overestimate their income and their wealth, and so they overspend. A 74% tax rate effectively means that one has to earn $3.85 in taxable income to have enough left, after all those taxes, to be able to spend $1 — but almost no one figures that out; people tend to focus on the nominal expenditure ($1).
2. It’s also an example of how a policy that would have been totally objectionable if introduced all at once, becomes acceptable when introduced incrementally and in a way that’s too complex to notice easily. It’s the “boiling frog” concept.
3. As such, it (along with many other things) makes a mockery of the notion that people consent (tacitly or explicitly) to their government. Who in his right mind would consider such a level of taxation sustainable for the rather broad section of the population that Stewart and his family represent? The fact that rich people typically pay far, far less, percentage-wise — because interest and cap gains are taxed at lower rates, and working people have to pay extra for “earned income” — adds insult to injury, and shows starkly how rent-seeking special interests have captured policymakers.
4. The fact that Americans have low savings rates, compared to, say, Chinese, is due mostly to their higher tax rates, not to their sloth.
Stewart’s admission may have been embarrassing, but I think he performed a true public service with this article. People need to wake up — and realize that government doesn’t have to be like this.