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Bait-and-switch on The Laugher Curve*

by: Eric B.

Sun Apr 15, 2012 at 09:52:48 AM EDT

Nolan Finley accuses The Kenyan Pretender of wanting a 100 percent tax rate on the wealthy right before admitting that The Kenyan Pretender doesn't want a 100 percent tax rate on the wealthy, but it makes his point, which is that a 30 percent rax rate will have the same affect on the economy and government revenue as a 100 percent tax rate.

A 100 percent tax rate on those privileged few would generate almost precisely enough new revenue to cover Obama's budget deficit. Of course, that's only if they're willing to keep working despite having to cough up their entire incomes to the government.

And it leaves nothing for them to pay their state and local tax bills, or to pick up the tab for Obamacare.

Obama isn't proposing anywhere near a 100 percent top rate. He wants millionaires and billionaires - including his presumed Republican rival Mitt Romney — to pay at least 30 percent.

Well, first of all, we know that it's not "Obama's budget deficit." We know that when George Bush took office, there was a budget surplus that turned into a budget deficit that has since grown. It covers two administrations, and we also know that the two leading contributors to the budget deficit have nothing to do with the Obama administration but have everything to do with tax cuts from the Bush era (which the ex-president has all but disowned these days) and the commencement of two foreign wars, one of which actually involved someone who instigated hostilities with us. We also know that the third major cause of the budget deficit has to do with rising health care costs mostly related to an aging American populace and that this places an extra burden on the federal government since all those people -- moving into the most health care-consuming period of their lives -- are transitioning from private health insurance to government Medicare.

But, you know, we've been through this before, like every time a major budget fight has come up in Washington. For instance, when the Tea Party Congress wanted to shut down the federal government over raising the debt limit, mostly because the Tea Party Congress (and the Tea Party in general) is deeply confused by the difference between using credit and paying off creditors, this was pointed out. And, when the Tea Party Congress wanted to shut down the federal government because its members think that the federal government is going broke because of Big Bird, this was again pointed out.

So, there's really no excuse at this point for someone to refer to the current budget deficit as "Obama's budget deficit" unless their purpose is to spread propaganda rather than seek out a role as truth teller.

But, this is a fairly informative comment on why Finley would go on to say something like this:

So it's probable for a 25 percent tax rate to produce more tax revenue than a 40 percent rate. The tax code's mission should be to efficiently raise money for the government, not to equalize wealth.

If only there were some way to work this out ahead of time..

In fact, the last half-dozen years have shown us that we can't have both lower taxes and fatter government coffers. The Congressional Budget Office, the Treasury Department, the Joint Committee on Taxation, the White House’s Council of Economic Advisers and a former Bush administration economist all say that tax cuts lead to revenues that are lower than they otherwise would have been – even if they spur some economic growth. And federal revenues actually declined at the beginning of this decade before rebounding. The growth in the past three years that McCain refers to brings revenues back in line with the 40-year historical average as a percentage of gross domestic product.

This is five years old, hardly controversial, and in fact based on a criticism of the underlying economic theory forwarded by David Stockman, the guy most credited with making it popular (and a former Michigan Congressman), that goes back almost 30 years. So, Nolan Finley isn't just peddling factual inaccuracies here. He's also peddling economic theories discredited in the last decade by the results of real world application.

As for his bit about the point of a revenue scheme not being about redistribution of wealth ... that's true. The point of a revenue scheme is also geared towards promoting the greatest economic growth and prosperity possible, which is actually the point of Finley's column. In that regard, we have yet more real world experience to apply. Seems that when you levy heavy, heavy taxes against the very wealthy and recycle that income back to the lowest earners, those people wind up spending a good deal more of the money they have rather than allowing it to sit in off-shore tax havens. Imagine what impact history tells us this sort of behavior has had in an economy defined chiefly by the consumption of goods and services?


Eric B. :: Bait-and-switch on The Laugher Curve*
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