Tuesday, March 17, 2009

The Incentive to Succeed

One of my network connections sent out a weekly commentary today. Great information to spur thought and conversation.

"Lyndon Johnson declared a War on Poverty, some 40+ years ago. Based on proposals I've seen, it appears that a War on Prosperity is on its way.

Current proposals would increase the top federal income tax rate to 39.6% for those with $200,000 in AGI, or $250,000 in AGI for joint filers.

In addition, about one-third of these earner's deductions would be disallowed, and we can expect payroll (FICA) taxes to be applied to all income over $250,000.

This combination of benefits will increase taxes for taxpayers in this bracket by about half. Finally, capital gains tax rates are expected to increase to 20%.

The beauty of this strategy is that the 2% of taxpayers affected cast only about 4% of the votes."

I was drawn to the final line about "votes" represented by the impacted taxpayers. I recall the recent elections and the campaign platforms, and put the entirety of this commentary in that perspective. It suggests that the slim minority of the voting public, affected by these proposals, lack the power to respond with any force in the ballot box.

I think that a review of history and a comparison of other national economies have both shown, however, that the general prosperity intended by this redistribution would eventually drive the opposite results. The incentive to succeed, to work towards prosperity, becomes a negative incentive when the fruits of those efforts are taken away. Over time, when the rewards diminish, the incentive to prosper fades as well.

I welcome your comments and insights.

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