In the 1990's when I met with Bob Packwood, the Senator from Oregon who was the Senate Finance Committee Chairman in 1986, he told me a story about a request he made to the Senate Judiciary staff in 1986 during the weeks leading up to the passage of the 1986 Tax Reform bill. Packwood said one night he was very tired and some Senators were demanding that changes be made that would produce more income and lower the deficit from the tax cuts.
Packwood said that he asked the staff to see how much income would be raised if people making more than $250,000 were taxed at 100%? He said he thought the staffers would laugh at him, but they didn't laugh and he forgot about it. The next morning the staffers came back and said that taxing people's incomes over $250,000 at 100% would raise the additional income needed. He said that he thought they were joking but then he realized that the staffers were serious.
Packwood asked them if they really thought that people making over $250,000 would continue working if they knew that all of their income over $250,000 was taxed at 100%. He said that the staffers just looked at him. Packwood said that incident really brought home to him the difference between people who had worked in the real world and people who worked in D.C.
The Taxman Cometh: Senate Bill’s Marginal Rates Could Top 100% for Some
The above is the headline of an article by Richard Rubin in the December 10, 2017 Wall Street Journal.
We have come a long way since1986, but apparently the same lack of real world experience by the Senate staffers who are writing this year's tax proposal is still in evidence. Mr. Rubin says, " Some high-income business owners could face marginal tax rates exceeding 100% under the Senate’s tax bill, far beyond the listed rates in the Republican plan. That means a business owner’s next $100 in earnings, under certain circumstances, would require paying more than $100 in additional federal and state taxes."
Mr. Rubin gives the example of a married, self-employed New Jersey lawyer with three children and earnings of $615,000 who will owe $105.45 in taxes on the next $100 he makes.
Does anyone believe that this change will not lead to people either not working more or, alternatively, finding a way to evade taxes on their income.
Steve Hayes is chairman of Americans for Fair Taxation.