For Cam Newton, Adding Super Tax Insult to Super Bowl Injury

When I give speeches in favor of tax reform, I argue for policies such as the flat tax on the basis of both ethics and economics. The ethical argument is about the desire for a fair system that neither punishes people for being productive nor rewards them for being politically powerful. As is etched above the entrance to the Supreme Court, the law should treat everyone equally. The economic argument is about lowering tax rates, eliminating double taxation, and getting rid of distorting tax preferences. Today, let’s focus on the importance of low tax rates and Cam Newton of the Carolina Panthers is going to be our poster child. But before we get to his story, let’s look at why it’s important to have a low marginal tax rate, which is the rate that applies when people earn more income. Here’s the example I sometimes use: Imagine a taxpayer who earns $50,000 and pays $10,000 in tax. With that information, we know the taxpayer’s average tax rate is 20 percent. But this information tells us nothing about incentives to earn more income because we don’t know the marginal tax rate that would apply if the taxpayer was more productive and earned another $5,000. Consider these three simple scenarios with wildly different marginal tax rates. The tax system imposes a $10,000 annual charge on all taxpayers (sometimes referred to as a “head tax”). Under this system, our taxpayer turns over the first $10,000 of his or her income to the IRS, which means the average tax rate on...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs