A Tax Increase Primer

The marginal tax is the dollar amount or percentage paid on an additional dollar in income. When you speak of increasing the tax rates you are referring to the increase in marginal rates. The effective tax is the actual dollar in revenue generated on the total income. This takes into account deductions, credits, and tax-preferred income streams like municipal bonds and capital gains. These deductions and preferred income treatments are the results of policy to encourage taxpayers to pursue these investments not just for their own benefit, but for the larger social benefits derived from such investments. While we treat capital gains and dividend income with a rate lower than the maximum rate on earned income, many countries do not tax capital gains at all. They view capital investment and the economic growth and jobs they create as a worthy outcome of their policy. The Laffer Curve argues that higher taxes, particularly at the margin, create a disincentive to earn and thus decrease...(Read Full Article)

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