The 25% Solution

Hello,

In the 1920’s then Secretary of the Treasury Mellon went through an exhaustive study to determine what top incremental income tax rate would maximize income to government yet, also, provide meaningful incentives for individuals to take business risks.  The answer was a top rate of 25%.   This is far lower than the current top rate of 35% and probably going higher due to rapidly rising Federal deficits.

Once you raise the top Federal tax rate above 25%, you hit what is called “the law of diminishing returns”.   Raising rates above 25% will produce far less revenue than is expected and also have the perverse effect of slowing the economy further—OR—finally tipping a stall speed economy into a serious recession. 

Bad policy, even for the best of reasons, is still bad policy.

Be Solvent & Prosper,

Sanford Kahn, Business Author/Speaker