Several years ago Fred had a million dollars invested in a money market fund yielding 4%. This earned him 4% per year or $40,000. His tax rate of 28% cost him $11,200 leaving him $28,800.

Toady they want to nearly double his tax rate to 43%. On the same principle he will only earn$2500 because the Fed keeps interest rates so low. He only earns a little more than 6% of the amount he used to earn. With the new higher tax rate nearly doubled he still pays less than 1/10 of the amount he used to pay and is left with only 5% of the after tax yield:  $1,425 vs $28,800.

Everybody is worse off . With lower yields the government ends up with much less tax revenue EVEN THOUGH THEY HAVE NEARLY DOUBLED THE TAX RATE.  With lower yields and higher taxes the investor/ saver is far worse off and has less money to “stimulate” the economy.

This fact seems totally lost on all those who think higher tax rates are the answer to our budget crisis.  Higher fiscal tax rates from Congress will not overcome the lower investment returns coming from the Fed.

We are far better off with lower tax rates on a growing economy

print