by Steve Forbes
This year marks the 100th anniversary of the federal income tax (February) and the Federal Reserve System (December), both of which today are doing immeasurable harm. And, thankfully, both will be undergoing enormous changes.
Income taxes punish the very things we want more of: productive work, risk-taking and success. We can’t say this enough: A tax on income is the price you pay for working; a tax on profits, the price you pay for success; and a tax on capital gains, the price you pay for taking risks that work out.
In times past when the income tax burden has been eased–that is, rates have been lowered–our economy prospered because people weren’t hindered or punished for engaging in more productive activities. The 1920s, 1960s and 1980s were all marked by fantastic innovation, greater economic growth and a gratifying rise in the standard of living. Even during 2003–08, when the income tax burden was eased, the economy did better (as we’ll discuss, the Federal Reserve undid this prosperity).
Some cite the period from the end of WWII through the 1950s as demonstrating that our economy could blossom under high income tax rates. They overlook the enactment of joint filing after WWII, which effectively cut a family’s tax burden in half. We grew in the 1950s because tax thresholds were high. There were also countless tax shelters that eased the bite of high rates. But those high rates took their toll as the U.S. was beset by a number of recessions, and the economy’s average growth rate in the 1950s was subpar.
Today federal income taxes are crushing us again. The fiscal cliff deal not only raised top rates but also reduced the deductions of higher-income people. Add in the Medicare tax–now 3.8% for upper-income earners–and the effective marginal federal rate is 44%. And President Obama wants to boost these levies even more. He envies France, which is putting in a 75% tax rate on the “rich.” Even more destructive, France is also hiking capital gains levels to that catastrophic height. …