Originally Posted by aceventura3

Host,

For a moment move away from national numbers and think about what your behavior would be if you were "rich" (you may be, I don't know). Then to illustrate the point, use two extreme marginal income tax rates of 90% and 10%. If you have choice, which you would have if you are rich, and you can earn an addition million dollars how would you uses tax management strategies?.

Under the first scenario of a 90% marginal income tax rate, what would you do? How much effort would you put into deferring the income? Accelerating expenses to off-set that income? Moving that income into non-taxed trusts? Moving that income into lower taxed entities or income streams, i.e. corporate tax may be lower, capital gains tax may be lower, municipal bonds may be tax free? At $1 million, the tax would be $900,000.

In the second the marginal income tax rate is 10%, the tax would be $100,000. How much less effort do you put into managing your tax burden here? How much effort relative to the $900,000 tax burden?

Hauser's law suggests that you would put in an effort in both scenarios to the point where your end tax burden reaches an equilibrium point. If that point is $90,000, you put in enough effort to reduce your $900,000 tax burden to $90,000 and you would do the same for your $100,000 tax burden. I know this is not a perfect representation of his data, but the total is the sum of the parts. At some point you have to look at individual behaviors.

Are you suggesting that in the 90% marginal tax rate scenario, that you would pay the tax without employing any tax management strategy?