of government spending to stimulate economic activity compared to private spending.
Back in 1980, the highest marginal income tax rate was about 70%. That means that for people in that tax bracket, 70 cents out of each additional dollar of income they earned went to the federal income tax. Throw in state income taxes and many people ended up keeping only 20-25 cents of each additional dollar they earned. In short, there was no incentive to earn more*. Instead, the incentive was to shelter income. Tax shelters don't do a lot to stimulate the economy. If you remember what the economy was like in 1980, we had stagflation (high interest rates and high inflation). In a word, the economy sucked.
When the marginal rates were lowered (eventually to 28%), the dynamic changed dramatically. Suddenly, the incentive was to earn more. In the end, tax revenue collections increased dramatically due to the economy being stimulated. I can show you figures from the IRS that prove that even as the top marginal rates were reduced, the percentage of total tax collections paid by the top wage earners increased. This isn't economic theory - it's historical fact. People weren't opposed to paying more in taxes so long as the net result was their getting to keep more of what they earned.
It's true that bureaucrats pay taxes, too (although some of them, at least at the state and local level, don't have to pay Social Security taxes). Still, that's lot less efficient at stimulating total economic activity than letting free enterprise work. Again, this isn't theory. All you have to do is look at what happened when countries like France nationalized industries under various socialist governments. The result was their economies pretty well tanked. Most experiments with nationalizing the economy were short lived.
*My wife used to work for a gifted oral surgeon here in Colorado Springs. As the Clinton tax increases to the top rates took hold in the early 1990s, he decided to take several months off each year. It got to the point where he was paying so much more taxes on each additional dollar he earned that it just wasn't worth it to him to work full time. The higher rates were a disencentive to earn more. He did a lot of charity work, but given the very high overhead of running an oral surgery practice, he didn't want to effectively do charity work for several months each year.
Off Topic » in reply to Bureaucrats pay taxes too.
It matters quite a bit because of the relative inefficiency...
