Did someone already bring up the Laffer curve? If (as stated by previous posters) the purpose of the income tax code was to maximize revenue, as opposed to punishing or rewarding income generation (or lack thereof), then it would be a simple matter of finding the “sweet spot” on the curve.
Of course, individuals will have different thresholds of pain. I’m not sure what my personal threshold is, but I admit that my present (marginal) tax rate of around 44% (including SET and CA state net FED deduction) does not stop me from working hard to maximize my income at the expense of lost liesure time.
If Obama is elected and makes good on his promise to raise my incremental rate up to 58% (depending on whose numbers you believe), not to mention the likelihood of CA state tax rate increase, I probably will work less. But who knows. I guess some people are still productive in Europe (I think – are they?), and I believe their marginal rates are even higher. If I work less, I will have to let an employee or two go, but I don’t think the “soak the rich” types care much about that.
IMO, state and federal tax codes are not about “maximizing revenue”, but instead reflect hard-lobbied-for policies of all manner of special interests. A great example is the home mortgage interest deduction, which makes homes more expensive on the backs of all tax payers. This $8K(?) tax credit being proposed for first time buyers to help prop up prices is another example. Where is the “maximizing revenue” part of the policy?
