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June 7, 2012

Remember 8%...

I wanted to study the percentage of income brought in to the federal government. I found the amount of income tax receipts from the federal government and the total personal income. Taking the former and dividing it by the latter gives us the marginal income tax rate. We have been hovering around 8% in the past few years, but the 7% handle in 2009 (a record low), is the product of a major problem in our tax policy. Tax credits are fixed, while all other factors involved are variable. When income falls, tax revenue is going to fall by even more, especially if the government introduces more credits (like the Making Work Pay credit). Remember 8%, it makes the flat tax argument more reasonable.

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