Why not tie the top marginal tax rate to the unemployment rate?

[nuxvomica]

Let's say we have a formula like this:

The top marginal rate is calculated as the (UR * 4)+10.

At 9.8% unemployment, the top tax rate would be 49.2%.
At 5%, the rate drops to 30%.

I see many advantages to this:

1) Government receives more revenue to stimulate the economy and subsidize unemployment insurance when the economy needs stimulating, less revenue when it doesn't need stimulus.
2) The pain of economic downturns is shared across income brackets.
3) The wealthy are more likely to invest in domestic job-producing industries instead of off-shorers and unproductive things like derivatives, shifting the economy toward domestic production rather than speculation.
4) The rich get to control their own tax rate through their investment decisions. They also see their investments grow as the well-employed consumer base grows.

I've been musing about this for a while and was surprised when a libertarian co-worker said he liked the idea. I say if the rich really do create jobs like many claim, let them prove it, and let them have some skin in the game.

So what do you think about the idea generally? Has this been proposed before or even attempted somewhere?

[bemildred]

1. I like the way you think.

The whole reason for business is to make jobs for people, right?

[rfranklin]

6. But the top rate should be more painful...say 70%

and then goes down 5% for each point that the unemployment drops.

It's too logical. They don't care about jobs, they just don't want to pay their fair share.

[bemildred]

8. At least, but the idea has merit, the incentives work in the right way.

I am quite willing to allow corporations to go tax free if they make sure everybody has a good job.

[Tripod]

25. I'm on the edge of poverty income.

I work 40 plus hours a week. Week in and week out. Making very little wage, I have earned a middle class wage before. Now I am paying 24% of my low income into state and federal taxes. I can not even pay for my heat, and electric this month. Fuck. Who gets there bill on time.... My landlord, electric, my kid in college, this internet sight, phone? I think that every one should pay an equal amount. Low or high amount of income, pay your part. Not Just us who are working hard to make ends meet!

[txlibdem]

28. This is the only "full employment" the Pukes will give to America

Tripod, I wish we lived in a Democracy and not the kleptocracy that we are trapped in today.

[nuxvomica]

33. We need establish a living wage in this country

The top-earners are making record amounts of money and where is it going? I doubt you're spending much on exotic financial instruments or stock in corporations that create jobs overseas. I dare say a greater percentage of your income is reinvested in the domestic economy, compared to the income of the top earners. I need to see if I can find some figures on that.

[randr]

2. What an amazingly excellent idea nuxvomica!!

Once the uber wealthy have reached a level of opulence there is no "carrot" to pull their cart.
If they, as they claim, drive the American market and employment lets give them some actual responsibility to do so, with a just reward attached.

[RKP5637]

3. I agree! It would be a limiting cap on outrageous tax breaks while the majority

suffer. Frankly, there is no motivation to create jobs the way it is now. It's far easier to globally invest than deal with US based employees and real US based products.

[annabanana]

4. Heh.. It would get the oligarchs a reason to be human-ish. . .n/t

[zazen]

5. interesting idea. . .go post it at Naked Capitalism

If any group could vet it and bring it to the attention of the progressive econ blogosphere, it's them.

[nuxvomica]

12. I couldn't figure out how to post there

So I emailed Robert Reich at his blog, altering the formula to get closer to the 70% top marginal he proposed.

[cpamomfromtexas]

7. Love it!

[greymattermom]

9. Great idea

It could even apply to incomes over 500K or even a million, so the not quite rich enough wouldn't be affected.

[lostnfound]

10. Then they will just make joblessness a crime, punishable by enslavement in a work camp

It would take them about 5 minutes to propagandize the public sufficiently to accept it. Voila! Cheap labor AND a 10% tax rate.

[nuxvomica]

11. My assumption is that labor law stays the same

I think there is enough incentive and unused domestic production capacity already that the rich wouldn't feel the need to do that. I'm more worried about bribed politicians messing with the official unemployment rate, which is already less than real.

[Rhiannon12866]

13. K&R. Economics was never my strong suit, but this makes sense to me...

When and where are you running for office? ;) :hi:

[vert1276]

14. well.......

are you talking about income tax rates or corporate tax rates? Second of all that idea would never work. Would you raise and lower rates every time new unemployment number came out? Business need to know in advance what their tax rate is going to be, so they have time to plan. And if companies are running in the red and are not paying taxes why would they care if taxes go up? And if companies are doing good and running in the black, they are the ones growing and hiring people why punish them with a higher tax burden?

[nuxvomica]

15. Income tax rates

Corporate taxation is too complicated for me to even guess about. I'm more concerned with the investor class and how they use their money. Whatever they have beyond the $250K is money people put to risk in investment anyway.
I'm not sure about the mechanics of it. I was thinking that an average unemployment rate over the same tax year would be used to calculate the tax rate.

[vert1276]

16. the two

are totally unrelated, so to think them would bot really have any effect IMO.

[nuxvomica]

17. Then proposing the idea might force them to admit that

I actually think there is a connection between investment direction and the rate of unemployment but if there isn't, it would be great to force the Republicans to argue that and drop the age-old talking point about the rich creating jobs.

[vert1276]

22. The rich dont creat jobs in most cases

Their money does. Through increasing bank liquidity, allowing interest rates to be lower. Meaning more projects get done. The problem we are having now is even with low rates the banks just took a huge hit to their liquidity because of the housing crisis.

A lot of economist and most all politicians think the best way to stop/get out of a recession is the Keynesian approach. Lower taxes and increase government spending. Temporarily of course!

[Warpy]

18. That's certainly one way to do it.

Combined with a truly progressive tax structure, it would work beautifully, only the top marginal rate should fluctuate between 70% and a confiscatory 95%.

Think about it, even forced to invest in the US to keep unemployment low, that low marginal rate would allow the plutocracy to seize more and more of the nation's wealth and dictate the terms of employment, meaning we'd be 99.5% serfs and 0.5% overlords, exactly where they are headed now. Only by making the tax truly progressive (the rates tied to the median wage) could we avoid the growth of plutocracy by providing a strong disincentive to greed and a means to siphon off obscene wealth.

No rich man ever has enough. However, it's a numbers game after a certain point, and even if those numbers are depleted by taxation, they still confer boasting rights to the little rooster who has them, and that is generally sufficient.

All these tax debates happened over a hundred years ago and the conclusion was that the only tax that was fair to the working class and which would provide sufficient revenue was the progressive income tax, something that would fall heavily on disposable income but not touch subsistence income. Thanks to Reagan, that whole notion has been turned upside down and that is why this country is in serious fiscal trouble.

[Citizen Worker]

19. Brilliant idea but first the methodology in calculating the UE rate must be made realistic. The way

the formula works now leaves out substantial numbers of the unemployed, 99 weeks and longer, underemployed and part time workers seeking full time employment.

[upi402]

20. Yep, count the ignored and tax the scaters

Good idea.

[nuxvomica]

21. Using the U-6, which was 16.1% for 1/2011, the tax rate is 74.4%

But in January 2001, the U-6 was 7.1%, making the top marginal rate back then, using the formula (U6*4)+10, only 38.4%. This would probably not be acceptable to the Republicans but the debate could at least start there. And the debate itself would be illuminating, instructional. Maybe it would even get the rich to start thinking about how they invest their personal wealth, and how the decisions they make as CEOs and board members affect that wealth.

[vert1276]

23. does

anyone in their right mind really think raising taxes on ANYONE create economic growth? Taxes are a necessary evil for government to operate. So we can have the rule of law, a military and some entitlements. The governments role is not, and should not be to set economic policy! The market sets economic policy!

Take it from the all knowing Milton
http://www.youtube.com/watch?v=k2Kg2SvsI8Q&feature=related

[nuxvomica]

26. The problem with Friedman is his ideas don't work

They've already been tried and it ended in disaster. The Bush tax cuts didn't help the economy, they just created huge deficits and rampant speculation. I think it would be better for rich people's discretionary income to be chasing jobs instead of exotic financial instruments that produce nothing.

[vert1276]

31. well

The bush tax cuts were not a Friedman approach? I think you are confusing Friedman with Keynesian economic theory.

[Tripod]

24. A great OP.

[nuxvomica]

27. Historical comparison, using TMR=(U-6 * 4)+5

This is an historical comparison to show how the formula (top
marginal rate = (U-6 * 4) + 5) would work in different
economic contexts. I've tried to keep the formula relatively
simple yet flexible, so that a low U-6 rate results in much
lower taxation (1999-2000). Yes, the rates are very high
during times of high "real" unemployment (the U-6
includes the underemployed and the discouraged) but I'm
proposing the incentive could have prevented those high rates.
 

Year    U-6 YRLYAVG   proposed TMR   actual TMR 
------  ------------  -------------  ----------
1994    10.79166667   48.16666667    39.6
1995    10.01666667   45.06666667    39.6
1996     9.616666667  43.46666667    39.6
1997     8.808333333  40.23333333    39.6
1998     7.991666667  36.96666667    39.6
1999     7.425        34.7           39.6
2000     7.025        33.1           39.6
2001     8.141666667  37.56666667    39.6
2002     9.583333333  43.33333333    38.6
2003    10.13333333   45.53333333    35.0
2004     9.575        43.3           35.0
2005     8.933333333  40.73333333    35.0
2006     8.233333333  37.93333333    35.0
2007     8.35         38.4           35.0
2008    10.56666667   47.26666667    35.0
2009    16.29166667   70.16666667    35.0
2010    16.75833333   72.03333333    35.0

[txlibdem]

29. It's a great idea, just need to add "jobs of adequate pay that a single worker can provide for a...

family".

[nuxvomica]

30. I admit that's a tough nut to crack

Median income has gone down for a number of reasons but it's all part of a economic class war that's been waged over the past 40 years, IMHO. With my limited knowledge of economics, I'm not sure how it could be addressed short of easing union organization (card check etc.) and establishing a living wage law. I'm old enough to remember a time of mixed, vibrant neighborhoods, with corner groceries and shops, and teachers, mill workers, bus drivers, etc. sharing the same status and dreams for their kids as doctors, lawyers and business leaders, etc. It's easier to destroy than to build, and the supply-siders attacked that America from multiple directions. That's what made our economy less productive. I refuse to believe the decline was inevitable so I still believe a reversal is possible. Maybe a return to a producing economy is the start but I don't know.

[txlibdem]

32. You make some good points

I've been such a "debbie downer" on DU lately I just felt like I needed to pull back a bit and not go so sour on the state of things. That said, I cannot disagree with a thing you wrote here. I don't know if revamping America's manufacturing sector is the "magic bullet" that will get the economy going again but it's one heck of a lot better than allowing these companies to pack up factories here and move them to china. Severe economic penalties should be imposed against any company that does that, that much I know.

[upi402]

34. That's a great idea!

It would solve multiple problems!

Therefore, it's off the table:grr: