In its place we can then simplify personal taxation: just treat all investment income (yes, dividends and capital gains) the same as we treat any other form of income, to be taxed at whatever is the appropriate marginal rate for the total income of the recipient.
Using the data from 1913 through the end of 2011, the correlation between the maximum marginal income tax bracket and total Federal receipts is a negative 0.50.
If we hold additional cash or banks hold additional cash reserves, total utility will rise, but marginal utility will likely fall.
The red line represents the top marginal tax bracket while the blue line shows the total amount of Federal government revenue each year.
Yet each firm has sunk so much capital in plants that it is strongly tempted to use the capacity to build extra cars that fetch enough revenue to cover marginal costs in the short run, but not total costs in the long run.
In fact, all four times in the past 80 years when marginal income tax rates were lowered, the proportion of total income taxes paid by the top 1% of earners increased, and the proportion paid by the lower 50% of income decreased.
FORBES: The Fiscal Cliff Is Built On A Mountain Of Ignorance
Your raw material costs on the last and marginal dinner you prepare are still a significant part of the total costs.
Currently another dollar earned by small business owners is earned at a marginal rate of 35% federal tax and a much higher total rate.
FORBES: Lower Taxes, Fewer Deductions: Are Romney and Ryan Dodging the Specifics?
Just as diminishing marginal utility means more of something adds less and less to total utility (bank reserves), it also means that less of something (bologna) will raise its utility at the margin.
FORBES: Tom T. Hall's Week in Jail, the Jailer's Wife's Bologna, and Monetary Policy
Total government spending declined for the past two years with only marginal effect on GDP growth.
Eventually we will reach a point where policy makers have driven out so much systemic background risk that any marginal decrease systemic background risk will simply induce individuals to take on more personal risk until they raise the total risk level back up to where it was before.
FORBES: What If This Is As Good As It Gets: Financial Stability Edition
Among them, the corporate tax with increases and the proposed total elimination of the deductibility of interest expenses, the income tax with its proposed 75% top marginal rate, and the undoing of parts of the pension reform.
Over the past 80 years, despite multiple movements in marginal rates up and down, the top 1% of earners paid an ever-increasing share of the total Federal income tax burden reaching its highest point at 40% after the Bush tax cuts and most recently representing 38.7% of total Federal income tax in 2009.
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