by Jack Roviere

Created on: March 11, 2007   Last Updated: May 17, 2007

The idea of 'high tax rates' is principally ludicrous, because everyone is likely to believe that their tax rate is too high. However, if one can analyze which tax structure one is using, then one can determine what is excessively high.

Some in America propose a flat tax rate-one whereby everyone would pay the exact same percentage of their interest rate. This would counter what is now being used: the progressive tax rate. With this structure, the upper levels of American society may pay up to 50% of their incomes, but the lower levels barely pay 2%. When talking about high tax rates, most people envision this progressive structure as being the standard of 'what is unfair and too high,' but the simple idea is that it is the only way to cover governmental costs.

To switch from a progressive tax rate to a flat tax rate, somehow the money lost from the rich would have to equal the money gained from middle class and poor class. However, because the income gap between the very rich and very poor is so vast, flat tax rates would actually have to charge very high percents to reach even close to the revenue of progressive taxes. A flat tax rate where everyone pays 40% or more of their income might make up for a progressive rate where each family pays a different percent, but in no way can this be considered a 'low' rate.

Some advocate, however, that the tax rate should still be progressive, but incentives should be given to businesses so that they will produce more. When President Reagan first advocated this, it was jokingly nicknamed "Reaganomics," but the official term is "trickle-down economics" or "supply-side economics". This theory posits that, as the rich have more money, they will invest more into their businesses, and supply will create its own demand: the easy mantra that best reflects the trickle-down economists is that of the movie "Field of Dreams": If you build it, they will come.

There are a few problems with this, however. Firstly, when the rich receive tax breaks, most of them do NOT re-invest this, but rather, they save it, which takes that money out of the economy. Secondly, even if they do invest it, they may not be investing it in places consumers are willing and able to spend for-supply does not create its own demand.

So, actually, high tax rates, however undesirable they may be to some, are simply the way things HAVE to be, unless, by chance, one would like to live in a world of European-style taxes for all citizens.

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