Once upon a time, we created a tool that makes it possible to predict how high U.S. politicians will set the maximum personal income tax rate in the U.S., depending upon three things:
Let's see how well our tool works. You can see a copy of it here.
Using our tool with the default data, we find that today's national debt burden per capita scores in at 3.168, which translates to an "old school" maximum income tax rate of 71.5%. Modern politicians are a different breed however, preferring to stay closer to the margins where changes in the nation's maximum personal income tax rate are likely to be triggered for the political advantages such a strategy offers. Our tool finds that they would set the top tax rate at 48.0%.
President Obama and the congressional Democrats are currently proposing to raise the top tax rate to 49.0%.
We should note that the real difference between the "old school" and "modern" politicians is that the "old school" politicians didn't actually know where the margins for triggering changes in the top income tax rate are - it's something that's had to be worked out by political trial and error. It has really only been since the late 1960s, and really, since the 1980s, that U.S. politicians appear to have registered any sort of recognition that these margins exist.
Political Calculations is a site that develops, applies and presents both established and cutting edge theory to the topics of investing, business and economics.
Be the first to read Political Calculation's column. Sign up today and receive Townhall.com delivered each morning to your inbox.