Every year, corporations set goals and performance standards. These then get pushed down to the Management team and the goals for higher sales and profits are set. The goal posts have been moved and it is time for the top performers to meet the objectives and earn their bonuses.

In fact if you are in the top 5% of income earners, over $159K Adjusted Gross Income in 2010, then you are not only a mover and shaker, but you in all likelihood have your pay tied directly to either your, or your company’s performance. And, your boss is not going to give you a raise because you “deserve” it, you will receive a raise only when you “earn” it. This is how performance management works. It is the old 80/20 rule that 80% of the value comes from 20% of the team. Furthermore, if you are in that top 5% and your income drops, you are going to do everything in your power to get it back to an amount you are comfortable with.

The fact is that each year the goals are pushed further and further and you respond. Additionally the company you either work for or own does the same thing. So critical is reaching the profit goals that when the Frank-Dodd Bill changed the way big banks could charge merchants for debit transactions, Bank of America responded by imposing a $5.00 per month fee on consumers. Then on 12/30/2011, Verizon announced it would charge $2.00 per transaction to those who opted to check their phone bill instead of taking Verizon’s historically faulty billing at face value and enrolling in their auto pay program. Another sample came last summer when Congress failed to extend the FAA tax. The price of airline tickets did not drop rather the airlines continued to collect the tax as added fare and pocketed the cash. It helped them meet their P&L goals.

Then there are corporate tax rates. Recently there have been a lot of politicians saying we will stimulate growth and jobs if we cut corporate tax rates. On the other hand there are those who want to raise them. A Fortune 500 Treasurer friend of mine said: “If they raise corporate tax rates, all that will do is increase consumer prices”. He is probably right. But what about lowering taxes? Is that really going to stimulate growth?

Let’s look at the facts, right now, the country is virtually paying banks to take its money in hope that it will lend and stimulate growth. The personal tax rates are at the lowest since 1990 when the top rate was 28% for those earning over $32K ($56.250 adjusted for inflation), currently it is 35% on those earning over $379K. If you make $32K, your rate is currently 15%, at the bottom of the top 10% of earners ($113K), 28%.

Capital gains rates on the other hand at 15% are the lowest since 1932 and it is doing nothing to stimulate the economy or jobs. In fact our low taxes on the top 5% of earners is doing nothing to stimulate the economy; why?

Maybe it’s because we keep giving raises to the top producers without pushing them to produce anymore.

Let’s think about it, our politicians think that if they rail against taxes and give tax breaks to their buddies, they will help them by creating jobs with the money they don’t pay. The problem with that is instead of forcing them to be more productive, we are giving them more money for doing the same job.

Hello!!!!, it doesn’t take a rocket scientist to figure out that if you are going to give someone more for doing the same or less, they are going to do the same or less. Perhaps we should take a lesson from business, and move the goal posts. If you want to make the same, produce more.

How does this fit into tax policy, especially Capital Gains? Simply stated, we as a people are lazy yet very inventive and creative. By rewarding people for passively investing at a low rate, we are redistributing wealth (Socialism) to those with the means as opposed to encouraging them to be inventive and develop new ways to produce jobs and capital.

They say “Necessity is the Mother of Invention” and if you used to netting $212,500 on $250,000 in Deferred Interest (Capital Gains), you would not let a 100% increase in tax rate let your net income drop below that $212,500 level. No, you would raise your gross to $303,500 by getting inventive and creative. Based on a 12 percent return, you would need to generate almost $450,000 in additional sales which would require between 2 to 4 additional employees to do. As a result, you may even take a higher risk investment, create or invest in a new company, to create jobs that produce the revenue and profit. But you are not going to create jobs out of some largess, especially when there is a risk to do so unless you need to maintain your comfort zones, your standard of living.

Perhaps this is why when we don’t set the bar high enough for top performers, we slip back economically. Politicians and Rupert Murdoch stir up the populist plot against high taxes and then demand future generations pay our bills.

Don’t get me wrong, I hate paying taxes too, but as part of the upper 10%, I am constantly striving to get back to my comfort zone in the upper 5%. As a result, I expect that this year I will be in a position to hire 5 people and hopefully have the privilege of paying taxes at a higher rate.